Joshua Golden works in the most expensive segment of one of the priciest housing markets in the country, selling hotel penthouses and luxurious single-family homes in Boston's posh Back Bay, South End, and Beacon Hill neighborhoods. For him, 2013 has been very busy.
"Buildings that people didn't want to touch during the crash are now considered very desirable," says Mr. Golden. Units in the yet-to-be-completed Millennium Place luxury condo project are 70 percent sold, and pre-owned luxury real estate is becoming so scarce that there's "really nothing to show individuals."
As demand for homes ramps up and inventory of available homes, tightens, home prices in the United States are rising fast. According to the latest read of the Case-Shiller 20-city home price index, prices for existing homes rose 0.6 percent in July, and they've jumped 12.4 percent since July 2012 – the biggest increase since February 2006.
In terms of sales pace, the high-end of the market has been particularly hot. High-wage workers, investors, and foreign buyers are snapping up luxury homes and pushing up prices. Sales of existing homes priced over $1 million surged 37 percent in the first half of 2013, triple the growth of the housing market as a whole, according to real estate research firm DataQuick. In some areas, including California's Santa Clara County (the heart of Silicon Valley) and San Francisco, it costs $1 million or more to buy a midrange home. Indeed: San Francisco had the second-largest yearly price jump of the 20 cities listed on the index, with prices there jumping 24.8 percent from a year ago. San Francisco's surge was topped only by Las Vegas, which saw a 27.5 percent year-over-year increase.
The surge in luxury home sales came later than the housing recovery for lower-end properties and the market will cool off, analysts predict, but for now business is booming.
"It makes sense for there to be a delayed effect on the high-end market, because you have buyers who want to make sure that the market has truly bottomed out before jumping in," says Daren Blomquist, vice president of RealtyTrac, a real estate information firm based in Irvine, Calif.
"The lower end will be the first to recover because that's where you have the most buyers and the least risk," he adds. "Also, in many markets the lower end has kind of been tapped out in terms of inventory and buyer appreciations. Investors who are flipping properties are moving on [to more expensive projects]. They're more willing to take bigger risks [than] in the past year and a half."
Two types of buyers seem to be driving the surge. In areas like Boston and Silicon Valley, a heavy concentration of high-wage tech workers are pinching the inventory of homes available in the $1 million to $2 million range, driving up prices.
In other cities, international investors are leading the charge, lured to the US by some of the lowest luxury real estate prices in the developed world and, often, pushed by economic uncertainties in their home countries. According to a study released by the National Association of Realtors in June, foreign buyers were responsible for 6.3 percent of the US existing home sales market in the past year, ending in March. They injected $68.2 billion into the housing market. And they were heavily concentrated in warm-weather states, such as Arizona, Texas, California, Nevada, and especially Florida.
In Miami, where sales of homes priced at $1 million or more are up 35 percent from a year ago, according to the Multiple Listing Service, purchases by foreign buyers make up the bulk of the city's luxury market – somewhere between 65 and 70 percent, says Coldwell Banker real estate agent Mike Brunnberg, the managing broker of the firm's office in Aventura, Fla., who sells high-end homes in Miami and Fort Lauderdale, Fla. And they are driving the city's high proportion of cash transactions (52 percent, according to MLS).
"We're relatively inexpensive compared to the rest of the world's top cities," Mr. Brunnberg says. "It's inexpensive to eat, we don't have state taxes, the rental market is cheap in relation to the rest of the world, and that's good for investors. Weather here seven months out of the year is probably the best. It's easy to get here from all parts of the world."
The influx of outside investment and all-cash payments has "helped the down market recover a lot quicker" than it would have with just domestic buyers struggling with tighter post-bubble financing standards, says Clark Toole, president and chief operating officer of Coldwell Banker in Florida. But now, as the housing market improves and interest rates rise, the luxury market should slow to a more normal pace, analysts predict.
"I do think it's certainly going to level off," Mr. Blomquist says. There was "a flurry of activity to get in as close to the bottom as possible. Buyers are realizing that real estate represents a good value right now, but the rush to get in will slow down along with home prices and the overall market. We're bouncing off the bottom."