Today, nearly three times as many individuals with a $5 million+ net worth own $1–$5 million in real estate, compared to the numbers in 2019 — that’s a 180{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} increase in luxury property ownership.
How did we reach such unprecedented growth in a three-year period? What power groups drive this demand, how do they redefine luxury and what should luxury real estate professionals know as they seek to serve clients in this new buying climate?
Our team at Coldwell Banker Global Luxury® once again looked to WealthEngine, Wealth-X, and The Institute for Luxury Home Marketing to compile the data for “A Look at Wealth 2021: Real Estate’s New Power Players.” What we found was staggering.
Behind the luxury housing boom
Two main factors drive the luxury real estate market today. Cryptocurrency gains, rising stock markets, and 401(k)s have combined with soaring home prices and low-interest rates, allowing consumers to borrow and save more while reinvesting cash. This new wealth allowed affluent individuals to buy more expensive homes — and more of them. People also continue to make life-changing moves, choosing to live out their values or embrace a FOMO-meets-YOLO mindset following the pandemic.
This has put the 2021 luxury real estate market on course to surpass 2020, which was already considered a record year. The volume of wealth spent on luxury real estate rose by over 21{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} between 2019 and 2020 — but when you compare January to August 2021 to the same eight months in 2019, it jumped by 79{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9}. Stats on August 31, 2021, already show real estate wealth in the luxury property market is now greater than 2019 and 2020 combined, with four months left to go.
Additionally, the number of properties purchased January-August 2021 in the $1–$5 million range jumped an incredible 142{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} for luxury single-family homes and 129{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} for luxury attached properties, compared to the same period in 2019. About 71{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} of luxury properties owned by those with a net worth over $5 million are now valued in the $1–$5 million range. We dubbed these folks the new “power players” because of their outsized influence on the luxury real estate market over the last 18 months.
The New Power Players
Suburban settings, resort markets, and secondary cities are still booming, while major metropolises are surging back, according to 2021 data to date. Four core groups are driving demand in these places: Baby Boomers, Golden Millennials, Second Homeowners and Urban Repatriates.
1. Baby Boomers represent 51{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} of power players. Speeding up retirement plans, they’re buying dream homes in places like Park City, Utah, where they can build family compounds near outdoor recreation, or Sarasota, Florida, where there’s sunny weather and a friendly tax environment. Boomers show greater affinity for second-home ownership, as well; there are 2,020,854 Boomers owning more than three properties, the most out of any age group.
2. Golden Millennials own 60{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} of millennial-owned properties priced $1–$5 million. Golden Millennials have reached the life stage (35–40) where they are getting married and having children. This, combined with shifting psychologies during the pandemic and inability to travel, pushed them toward suburban locations, like the Greater Chicagoland area, and hot secondary cities like Atlanta, where they can get more house for their money. The influence of Golden Millennials will be important to watch as their wealth and real estate portfolios grow.
3. Second Homeowners still drive the 2021 market. This power group gobbled up inventory and drove up prices in resort enclaves like Coeur D’Alene and Monterey. Their influence on the overall luxury property market is one to watch; nearly 70{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} of those with a net worth of $5 million+ own two or more properties.
4. Urban Repatriates pump up cities again. Luxury attached property values in 2021 increased an average 14{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} compared to 2020 and 2019, and the number of sales in the first eight months has already increased by over 45{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} compared to the full year of sales in 2019 and 59{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} compared to 2020. Investors capitalizing on low-interest rates and higher inventory in cities like San Francisco and New York are behind the uptick, as are newcomers flocking to the city and former residents who fled in 2020 and are now on the hunt for more square footage and outdoor space.
As these New Power Players continue to make moves in the high-end housing landscape, we will see new definitions of luxury emerge as they refine how and where their wealth is spent. Luxury professionals who want to stay on top of their rising influence and upward pressure on demand and prices are encouraged to read the complete ALAW report on the Coldwell Banker Global Luxury blog.
Michael Altneu is the vice president of luxury for Coldwell Banker Global Luxury.