Luxury Home Prices Grow Just 3% in 4th Quarter; Foreign Buyers Boost Prices in Breakaway Cities

Real Estate News & Analysis

Luxury Home Prices Grow Just 3% in 4th Quarter; Foreign Buyers Boost Prices in Breakaway Cities

High-End Home Prices Up 66 Percent in Miami Beach

luxury home pricesAfter a 16 percent growth spurt in the first three months of the year, average luxury home prices in the fourth quarter grew by just 3 percent year over year, the lowest level of growth since 2012. Price growth in the luxury market, which we define as homes priced in the top 5 percent, was lower than in the rest of the market, for which prices grew 5 percent year over year.

AverageSalePrice_LuxuryQ42014

This follows a slowing price trend we saw in the luxury market and across the overall market throughout 2014, and one we expect will continue this year. But what really caught our attention was that the overall slowdown in luxury home price growth didn’t hold everywhere. In many cities, luxury home prices outpaced the rest of the market by double digits. In other cities, prices in the top 5 percent plunged in the fourth quarter even as prices in the bulk of the market rose.

The 10 Cities With the Priciest Luxury Housing in Q4

Rank City Average Luxury
Sale Price
Growth in Average
Luxury Sale Price
Quarter over Quarter
Growth in Average
Luxury Sale Price
Year over Year
1 Miami Beach, FL $8,337,000 32% 66%
2 Los Angeles, CA $4,808,000 2% 12%
3 San Francisco, CA $4,668,000 19% 10%
4 Boston, MA $3,380,000 18% 11%
5 Irvine, CA $3,180,000 16% 25%
6 Kirkland, WA $2,506,000 17% 39%
7 Bellevue, WA $2,435,000 -5% -2%
8 Huntington Beach, CA $2,426,000 1% 17%
9 Washington, DC $2,402,000 17% 25%
10 Fort Lauderdale, FL $2,353,000 -5% 11%

Breaking Away

Miami Beach topped our list of most expensive cities last quarter with an average luxury sale price of $8.3 million. It also led the pack of breakaway luxury markets in the fourth quarter. Luxury prices in Miami Beach leaped by 66 percent over the previous year, pumped up by a strong surge in foreign buyers from Europe and South America. There was a staggering 41 percentage point difference in luxury price growth compared with the rest of the market.

According to Miami Redfin agent Aaron Drucker, foreign buyers have gained such a presence that neighborhoods once considered affordable or middle class are now populated by wealthy people, and the middle class has had to move inland.

“Locals haven’t been part of the party,” Drucker said. “In Miami Beach, downtown and in Brickell, many condos are empty and most sales are in cash because they are second, third or even fourth homes for foreign owners and U.S. elite who want to preserve their wealth in U.S. real estate.”

Next on our list of most expensive cities are Los Angeles and San Francisco, where prices in the top 5 percent and in the rest of the market grew in lockstep in the fourth quarter. In L.A., both luxury prices and prices for the other 95 percent of homes grew by 12 percent. In San Francisco, luxury prices were slightly outpaced by the rest of home prices, with growth of 10 percent and 15 percent, respectively.

But some of the cities that caught our attention in the fourth quarter weren’t home to the most expensive luxury homes. In a few head-turning places — Kirkland, Washington; Alexandria, Virginia; and Sugar Land, Texas — luxury home prices grew much more than prices in the rest of the market compared with the same time the year before. Price growth in Kirkland’s luxury market outpaced the rest of the market by 28 percentage points, Alexandria showed a 25 percentage point difference and Sugar Land had a 23 percentage point difference in price growth between the top and bottom of the market.

Though geographically diverse, these breakaway cities have in common double-digit luxury price growth and strong international buyer interest.

Cities Where Luxury Most Outpaced the Rest of the Market

Rank City Average Sale
Price
Top 5%
Average Sale
Price
Other 95%
YoY
Price Growth
Top 5%
YoY
Price Growth
Other 95%
Percentage
Point
Difference
1 Miami Beach, FL $8,337,000 $579,000 66% 25% 41
2 Kirkland, WA $2,506,000 $526,000 39% 11% 28
3 Alexandria, VA $1,581,000 $450,000 28% 3% 24
4 Sugar Land, TX $1,283,000 $356,000 38% 15% 23
5 Washington, DC $2,402,000 $528,000 25% 3% 22
6 Irvine, CA $3,180,000 $752,000 25% 8% 17
7 Oakland, CA $1,727,000 $541,000 28% 16% 12
8 Carlsbad, CA $1,678,000 $652,000 16% 4% 12
9 Fort Lauderdale, FL $2,353,000 $320,000 11% -1% 12
10 Boston, MA $3,380,000 $549,000 11% 0% 11

Trailing Behind

In most cities, the luxury market cooled off in the fourth quarter, and nowhere was that more evident than in the next group of cities. Below are cities where the bottom 95 percent of the market most outpaced their luxury counterparts. In Delray Beach, for example, luxury home prices plunged by 18 percent, while the rest of the market increased by 12 percent. Prices also plummeted by 18 percent in Boulder, Colorado, and in Holly, Florida.

The bottom 95 percent of home prices are catching up to their luxury market counterparts in other cities, including the Seattle suburb of Bellevue and California’s Santa Rosa. Prices in the bottom 95 percent of the market surged 19 percent in Bellevue and 14 percent in Santa Rosa, even as the luxury segments in those places showed only moderate price growth or a decline.

Cities Where Luxury is Trailing the Rest of the Market

Rank City Average Sale
Price
Top 5%
Average Sale
Price
Other 95%
YoY
Price Change
Top 5%
YoY
Price Change
Other 95%
Percentage
Point
Difference
1 Delray Beach, FL $1,790,000 $223,000 -18% 12% -30
2 Boulder, CO $1,962,000 $528,000 -18% 5% -23
3 Bellevue, WA $2,435,000 $682,000 -2% 19% -21
4 Miami, FL $1,183,000 $224,000 -8% 6% -14
5 Palm Springs, CA $1,442,000 $354,000 1% 12% -11
6 Santa Rosa, CA $1,693,000 $477,000 3% 14% -11
7 Denver, CO $1,186,000 $309,000 1% 10% -9
8 Jupiter, FL $1,814,000 $329,000 2% 10% -8
9 Atlanta, GA $1,282,000 $250,000 1% 9% -8
10 Long Beach, CA $1,457,000 $429,000 -2% 4% 11

Looking Ahead in 2015

A strong domestic economy, stable price growth and financial volatility abroad are increasing the attractiveness of U.S. housing to foreign investors. Miami Beach is likely to be just the tip of the iceberg for breakaway luxury markets in 2015. We predict that coastal cities, such as Huntington Beach, California, that are already popular with foreign investors, as well as inland areas with a track record of foreign ownership, like Scottsdale, Arizona, will be added to the list of breakaway cities in 2015, even as prices in the rest of the U.S. market slow.

To take a look at luxury home prices in your city click here.

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