Despite limited data and studies, the available trend lines suggest luxury real estate, not only Las Vegas luxury real estate, is more stable (or less volatile) and more insulated (or less exposed) to general market forces. The characteristics of this apparent phenomenon are related to the one-of-a-kindness of luxury real estate, the affluence of the buyer group being less impacted by or dependent upon interest rates, debt-to-income ratios or income variability.
Also, the value or worth of luxury homes is weighted heavily on the buyer’s personal values and lifestyle than the dirt, bricks and mortar – in so doing, the buyer imbues the real estate with even more unique attributes, ones only in their individual mind’s eye. Because of this timing, the purchase of luxury real estate is less of a consideration, less consequential than buying commodities (including low priced real estate) or equities.
However, lack of urgency to be a participant and make an offer is a concern caused by the flip side of one-of-a-kindness. Which suggests all it takes is one buyer to see the beauty of the home and it’s gone with few if any similar substitutes for the buyer who misses or loses out by procrastinating or seeking to time the market.
Luxury homes are unique relative to the broader market. All the attributes that make a home luxury is exactly why they trade in a manner distinct from other homes. Therefore, this market must be understood separately from the more homogeneous homes that make up the bulk of transactions.
Aside from obvious distinctions like sprawling floor plans, impressive pools and high-end finishes, another characteristic of luxury homes is idiosyncratic movements in price at nearly every level of geography. The street, the view, lot geometry, and other factors may also dictate why one home trades differently than another within the same subdivision.
These are the considerations that must be analyzed when buying or selling a mansion or custom homesite. In addition to spatial issues, there are temporal considerations and housing assets trend very differently by price range. Because luxury housing is thinly traded and uniqueness can be miscast as volatility, few home price indices exist specific to this asset class.
The Current State of the Luxury Home Market in Las Vegas
S & P Dow Jones does publish a tiered version the Case-Shiller home price index for Las Vegas. This product segments the market into three price tiers, so there is some insight on how each segment has changed over time
Consider the graph below, which illustrates the three market tiers. Note during the bubble of 2006, the homes in the lowest one-third of pricing increased the most. In the subsequent drawdown, they were impacted more negatively than the other two tiers.
In the recent run-up in prices, the segment again outstripped the pace of growth of the other two segments. This was probably due to affordability concerns. Although there may be a role of speculators as well. The highest price tier has been far less volatile. From the bubble peak-to-trough, the high tier dropped by 58% while the middle and low tiers dropped by 63% and 70% respectively.
An individual home that is similar to the belly of the market (which is close to $300,000 today) is likely to trade generally along the trend of the broader market, going down in value when the market drops and going up in value when the market climbs.
Conversely, we have observed some examples of luxury homes trading twice within eighteen months for a higher price when the overall market was still dropping considerably. Strong buys can be made in a variety of markets and often, some of the best opportunities exist in thinly traded markets.
Although the high-tier index in the graph above helps paint a picture of higher-end properties trending over time, homes priced above $1 million generally fall into the 99th percentile of all homes sold and are thus too unique to easily classify.
Homes that sell for over $2 million exist in a market all their own and this makes up a fraction of the top one percent of homes sold. There is also evidence to suggest that this sector is largely insulated from the broader declines in the market.
The graph below shows sales from 2008 through the summer of 2018 for The Ridges. While the other graph illustrates sales from MacDonald Highlands over that same period. Recall from the graph above that the major price tiers were all dropping from 2008 through 2011 and bottomed roughly in the 2012- 2013 period.
While the price per square foot graphs illustrates some price pressure over this same period, the pattern scarcely resembles the trend of the broader market. Part of this is due to a higher presence of foreclosures within the lower priced segments.
A very high proportion of typical homes in the Las Vegas market had been high loan-to-value properties and owners were thus at risk of defaulting with even the shortest duration of unemployment. While some luxury homeowners also had performance issues, greater equity did appear to immunize much of the segment from unnatural sales.
Will the luxury market see another steep decline?
An additional consideration for buyers in the current environment is, do they ever expect a decline as deep as the 2007-2012 period again?
In a majority of our conversations, buyers do not anticipate a return to the prior housing crash and luxury buyers are more concerned with the features of a luxury home.
Another consideration for buyers is the advancement of Las Vegas as a luxury home destination. In high-rise, the iconic Residences at Mandarin Oriental set new records for price per square foot in Las Vegas and by a wide margin.
Some single-family analogs may be taking place within The Summit in Summerlin and both Ascaya and MacDonald Highlands in Henderson. Each of these areas is seeing super-custom home development on estate size lots and these will raise the bar for sales when they ultimately trade.
In the economics and marketing literature, the concept of exclusivity and rareness features prominently. In the retail world, consumers perceptions require that the brand is also exclusive to a luxury clientele.
In Las Vegas, super-prime luxury is getting even more exclusive relative to the number of individuals with the capacity to purchase such a home.
As a result of the development of very high-end residences that cater to the most discriminating buyers, existing homes are also likely to benefit through progression or the view that on a relative value basis, some existing homes may be under-priced compared to recent offerings, a concept we often see occurring in existing homes next to new home neighborhoods.
REASONS BUYER’S ARE INVESTIGATING LUXURY HOUSING
- Increasing development costs
- Growing wealth of the super-wealthy
- California migration
- Chinese/Russian capital sheltering
- Asset rebalancing from equities
- Nevada has no income tax and is, therefore, a strong candidate for a primary residence
- Cash windfall
- May be part of a person/company’s business (entertainment and marketing)
REASONS TO AVOID LUXURY HOUSING
- Interest rates (could also be a reason to buy depending on expectations of future rates)
- Expectations of economic declines
- Carrying cost
- Black Swan event
The McNamara Group at Coldwell Banker Premier Realty is available to assist in any Las Vegas Real Estate. Luxury Real Estate in Las Vegas brings its own unique challenge that should be handled with care and experience.