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High End Home Sales in the United States in 2004

Rathin Neogy, MBA

High End Home Sales According to David Lereah, senior vice president for the National Association of Realtors, the sale of high end homes are expected to increase. After a cooling-down period following the stock market bust two years ago, high-end homes are poised to make a comeback. And once again it's stocks that could fuel the sales. Low- and mid-range homes have been the star of the housing boom over the last two years. Thanks to strong demand from young, minority, and immigrant households-groups that helped boost first-time buyers to more than 40 percent of sales last year-the housing market was robust even as the broader economy remained sluggish.

The low interest rate environment, which helped keep housing affordable for many buyers at the same time that strong demand drove healthy price appreciation, was a critical part of that equation. It's no surprise that existing home sales had two record months in a row this year, July and August, setting the stage for yet another record or near-record year. These trends are putting the pieces in place for renewed interest in high-end homes. If the trend takes root, even moderately increasing interest rates may not derail luxury sales. That's because many high-end buyers pay cash. A Coldwell Banker survey puts the number of cash buyers at nearly one out of three.

Lereah continues to predict that moving into 2004, U.S. economic growth is expected to be in a healthy 3.5 percent range. That rate of growth should keep homebuying interest strong, even as interest rates rise modestly. And now with signs suggesting improved wealth creation in the stock market, home sales could be fairly balanced between the low- to mid-range and the luxury sectors. Meanwhile, according to Coldwell Banker's home sales index, the national average home value rose 7 percent from a year ago.

Seven of the nation's 10 most expensive markets are in California, the remaining three in New England. The Midwest yielded seven of the 10 most affordable markets, Coldwell reported. Of the seven California cities, three, San Francisco, San Mateo and Palo Alto, are in the expensive and volatile San Francisco Bay area housing market, anchored to the south by Silicon Valley (Santa Clara County) where prices are beginning their seasonal tumble. In California, with near record sales, the housing market moved briskly into the 2004 peak season. There were 640,710 sales of detached existing homes (at a seasonally adjusted and annualized rate) in April 2004, the third highest monthly sales figure on record. Sales rose 9.8 percent compared to April of last year and were up 5.8 percent year-to-date compared with the first four months of 2003. Monthly sales have exceeded 600,000 annualized units in seven out of the last nine months.

Although annualized sales increased by over 50,000 units compared to the prior month, tight inventories continued to drive rapid price appreciation in excess of 20 percent. At 1.7 months, the unsold inventory index remained near its all-time low of 1.6 months that was set a month earlier in March, while the median price rose 24.6 percent year-to-year to a record of $453,590. The median rose 5.8 percent compared to the revised March median of $428,570.

All regions of the state have participated in the market surge that began in the middle of last year and has continued through the present period. The Bay Area median price reached a new record of $634,830, rising 14.5 percent over April of last year. The Bay Area remains the highest priced region of the state. Sales climbed as well, rising 16.1 percent year-to-date compared with the same period last year. However, monthly sales have yet to reach the peak level for the Bay Area that was set in June 1999. The median price in the Central Valley region also reached a new record of $261,090 on a 22.2 percent year-to-year increase. Sales in the region have advanced 19.2 percent thus far in year-to-date terms. Of the three major regions in California, Southern California had the smallest year-to-date increase in sales at 3.0 percent, but its median price has experienced the most rapid increase as a result of extremely tight supply conditions. The April median was a record-setting $447,950 with a 29.1 percent year-over-year increase. The tight housing market in San Diego as well as the strong local economy will keep pushing prices of homes upward over the next few years.