The 2024 Outlook by LandVest is a 3-part series of analysis and insights on the investment land and luxury residential markets. The perspectives outlined in this series are informed by performance in our investment land, residential, and fiduciary consulting business units and in consultation with over 70 real estate professionals from brokers to appraisers and fiduciaries serving New England families. Part 3 is by Ruth Kennedy Sudduth, Principal and Vice Chair of LandVest’s Board of Directors.
There’s nothing like a 100 basis point drop in mortgage rates and a new stock market peak to fill the sails of the luxury real estate market in the new year. After 2023’s modest drop in sales volume, despite higher prices, and a “meh” fall, 2024’s market has started nicely.
LandVest’s monthly polling of our brokers and consultants was not only stronger than a year ago, but way stronger than just a month ago, by over 30%. For more, see Slater Anderson’s post.
What’s helping the market?
Inventory is still tight. It’s cheaper to stay put than pay double the mortgage rate. Renovation costs are high. Turnkey properties are hot. The wealthy are doing particularly well. (More on how wealth drives the luxury market here)
What’s on our (and our clients’ and their advisors’) minds? Interest Rates.
A popular misconception is that interest rates don’t matter to high-end real estate, because most sales are cash. Not true.
Joe Taggart’s look at the sensitivity of the real estate market to rates shows that interest rates matter, even at the high end.
Yes, most luxury sales are “cash”, but the cost of capital impacts everyone.
Notes Carolyn Decker of Lake Street Advisors, a multi-family office with whom LandVest has the privilege of mutual clients, “there is always financing behind the scenes, whether it is mortgage borrowing, portfolio lending, or even taking money from other investments.”
When cash yields over 5%, interest matters.
Decker observes that this is true not just for buyers, but for sellers. “It is harder to move if clients have to borrow at a higher rate. But for those that don’t need to borrow or who are looking for sale proceeds to fund other life priorities, now it’s much more expensive to keep a property longer than they want to.“
For a $2.5M property, out-of-pocket annual carrying costs are generally in the $50,000 – $100,000 range. 5% on the sale proceeds is another $125,000, bringing the total for holding a property for a year to $175,000 to $225,000. Sellers need to think about the opportunity cost of keeping a property longer than they want to. Wealth and the cost of capital drive the high-end market.
So far, so good this year. Our analysis calls for a strong improvement of over 20% in luxury sales volumes this year.
What does this mean for our clients?
It’s a good time for sellers to get on the market, because there isn’t much competition.
Do the pre-market due diligence. Not just a new coat of paint and cookies at an open house, but pull the underground tanks and find the lot lines to ensure there are no issues.
Proficient marketing, the reach of the message, and individual storytelling matter more than ever. It’s not selling “houses in boxes” in 24-up print ads. The LandVest-Christie’s marketing team is doing great work in that space. An enduring theme post-COVID is prioritizing lifestyle and work-life balance, and the choice of home is front and center.
We are here to help.
The 2024 Outlook by LandVest
The 2024 Outlook by LandVest is a 3-part series of analyses and insights on the investment land and luxury residential markets. The Outlook is informed by performance in our land, residential, and fiduciary consulting business units. Read Part 1 by Joseph Taggart, or Part 2 by Slater Anderson.
