Luxury Home Market Picking Back Up

Demand for luxury homes in San Diego County picked up in January and February after dropping toward the end of 2022 but an exceptionally low inventory has been an issue.

Melissa Goldstein Tucci
Broker Associate
Coldwell Banker

“There’s a lot of buyers looking. Things are definitely moving,” said Melissa Goldstein Tucci, a broker associate with Coldwell Banker. “It’s definitely picked up since the very beginning of January.”

Tucci said that the luxury market slowed from October through December.

According to Zillow, an online listing and selling service, sales of $5 million-plus homes in San Diego County were down 80{30865861d187b3c2e200beb8a3ec9b8456840e314f1db0709bac7c430cb25d05} year over year in December 2022 compared to December 2021.

Zillow reported that there were only nine sales of more than $5 million in San Diego County in December. The high point last year was in April, when 38 homes sold for more than $5 million, according to Zillow.

Brett Combs
Combs Group of Compass

With uncertainty about the overall economy, “I think a lot of people were waiting until the first of the year, waiting to see what would happen,” Tucci said.

“The luxury market as a whole showed some really healthy signs in January,” said Brett Combs, president/broker of Combs Group of Compass.

“There’s been a really positive trend that wasn’t forecast,” Combs said.

Buyers Get a Break

Cheryl Chase-Berkson, owner of Chase Pacific, said that after a brief slowdown in late 2022, “it seemed like there were buyers kind of coming out of the walls in January. I don’t know what the spring and summer will be. That’s when the big activity is in real estate,” Chase-Berkson added.

Loraine Dyson
Wisdom Properties

Loraine Dyson, owner/broker of Wisdom Properties, said that the luxury market “is still holding strong coming off a year of spectacular sales activity. This is a balanced market currently but tipping in favor of the sellers due to a lack of inventory,” Dyson said.

Laura Barry of Barry Estates characterized the luxury market as “stabilizing.”

“We’ve had so many people moving here from out of the area,” Barry said.

Barry said a so-called mansion tax in Los Angeles is prompting some luxury buyers to choose San Diego over Los Angeles.

Laura Barry
Barry Estates

“They’re going to have to move somewhere,” Barry said. “Why not here?”

That new so-called “mansion” tax, which takes effect in April, will levy a 4{30865861d187b3c2e200beb8a3ec9b8456840e314f1db0709bac7c430cb25d05} tax on all property in Los Angeles sold or transferred for more than $5 million – and a 5.5{30865861d187b3c2e200beb8a3ec9b8456840e314f1db0709bac7c430cb25d05} tax on all property sold or transferred for $10 million or more.

Critics of the mansion tax have started a petition drive to put a measure on the 2024 ballot that would repeal it in Los Angeles and prevent imposition of a similar tax anywhere else in California.

Jim Graves, a realtor with Barry Estates, said that he thinks that since the end of 2022 the luxury has “kind of shifted more to a buyer’s market. Sellers aren’t able to dictate terms,” Graves said. “I do think there’s a lot of buyers interested on the high end. They’re just being more patient.”

Jim Graves
Barry Estates

“The better properties are still in high demand, at least from my perspective in Coronado,” said Scott Aurich of Pacific Sotheby’s International Realty.

Low Inventory

Like many agents, Aurich said that the problem he’s running into is that there aren’t enough homes on the market.

“Typically, in Coronado, we have 100 to 120 properties on the market at any period of time,” Aurich said in mid-February. “Right now, there are 35 properties on the market.”

At the peak of the buying frenzy of the past few years, Aurich said the inventory in Coronado dropped to 20 homes, which he said was the lowest he’s seen in his 30 years in the business.

Scott Aurich
Pacific Sotheby’s International Realty

“We do still have people who want to be in Coronado and when they do (buy), they pay what the need to be there. It’s just not that frenzy that there was.”

Linda Daniels, a realtor with the Daniels Group of Willis Allen Real Estate, said that as of mid-February the inventory of luxury homes for sale in La Jolla had dropped to 78 compared to a normal market of 160 to 220.

“I’ve seen ups and downs probably five times in my career. This is the most challenging,” Daniels said. “Inventory is starting to get a little more flush but sellers are cautious of putting their house on the market.”

Linda Daniels
Daniels Group of Willis Allen Real Estate

Dyson of Wisdom Properties said that the inventory in Rancho Santa Fe, which typically would have about 250 homes listed for sale, was down to 62 listings in mid-February.

“We are facing an extremely low inventory,” Dyson said.

Adam Loew
Keller Williams Realty Carmel Valley

Adam Loew with Keller Williams Realty Carmel Valley said that county-wide, there were 2,445 homes on the market in mid-February, of which 637 were what he would classify as luxury listed for more than $1.5 million; 128 for more than $5 million; and 47 for more than $10 million.

“It’s low, extremely low,” Loew said. “A healthy market (in terms of overall inventory) would be 7,000 to 9,000.”

Loew and others said that luxury homeowners are likely waiting to get a better reading on what’s happening on the stock market and with the overall economy before  putting their homes up for sale.

“A lot of wait and see activity has been happening,” Loew said.

On the buyers’ side, “Our market is seeing an increase in people wanting to be here. The cash market is strong, especially in the luxury space,” Loew said. “There’s more cash on the sidelines than in the history of the world.”

Deals to Be Had

That’s not to say that there aren’t pricey homes up for sale. The highest-priced home listed in mid-February was in the Muirlands neighborhood of La Jolla, where a home promising panoramic views was listed at $34 million.

Cheryl Chase-Berkson
Chase Pacific

Chase-Berkson said that she’s encountered a growing number of people who are leaving California but holding onto their homes to rent them out in case they change their minds and want to return.

“There’s more inventory coming up on properties to be rented than properties for sale,” Chase-Berkson said.

Prices in the luxury market have moderated since peaking in 2021 and early 2022 and some sellers are starting to adjust their expectations, no longer expecting offers to far exceed listing prices.

“If not, then they’re being educated by their real estate professionals, Tucci said.

Nancy Layne, broker of record with Windermere Homes & Estates, said that “for the luxury buyer, there are deals to be had because they (homes) have been on the market longer and they (sellers) are willing to negotiate.”

Layne cautioned that sellers should beware of potential fraud from people offering unusual deals.

“There’s just a lot of crazy out there that always happens when the market gets interesting,” Layne said.

When the luxury market was at its peak, it was common for sellers to get multiple offers, and depending on the property, some sellers are still getting multiple offers, but fewer than they would have even six months ago.

“We’re still see multiple offers on houses that are well-priced,” Layne said. “The sellers have come to the realization that there aren’t 42 buyers standing out on their lawn wanting to buy their house.”

Cash Rules

Unlike the market for more moderately priced homes, some agents said that rising interest rates have had little impact on the luxury market because many buyers pay cash or make large down payments – often more than half the value of the property, according to several brokers.

“They’re probably more hindered by the stock market and bitcoin and investments,” Layne said.

Orphe Divounguy
Senior Economist

Expressing a contrary view, Orphe Divounguy, senior economist at Zillow, said that some high-end buyers arrange interest-only loans where their monthly payments are for just the interest. If mortgage rates rise and home prices drop, they put their money elsewhere.

Divounguy said that high-income buyers keep a careful watch on interest rates and home prices.

“They’re going to be looking for quality. If they think prices are falling and putting that money into a home is not going to yield the same return as something else, they’ll pull out. That’s what I would do if I had $20 million.”

“What’s interesting is that the higher the price of the properties, over $10 million, were almost all cash [deals],” Dyson said.

Priscilla Wood Balikian of Compass said that 30{30865861d187b3c2e200beb8a3ec9b8456840e314f1db0709bac7c430cb25d05} to 40{30865861d187b3c2e200beb8a3ec9b8456840e314f1db0709bac7c430cb25d05} of her clients are cash buyers, and  Dyson said about 60{30865861d187b3c2e200beb8a3ec9b8456840e314f1db0709bac7c430cb25d05} of her clients on average are cash buyers.

A catch in interpreting statistics on luxury home sales is that there are sometimes “off-market,” meaning that they don’t show up in Multiple Listing Service numbers, Dyson said. She said that off-market sales accounted for about 10{30865861d187b3c2e200beb8a3ec9b8456840e314f1db0709bac7c430cb25d05} of luxury home sales in Del Mar and Rancho Santa Fe.

Eye of the Beholder

The definition of what makes a luxury home remains a bit fuzzy. Some brokerages set the dividing line between moderate and luxury-priced homes at $1.5 million while others say it’s $5 million to $7 million.

“Luxury used to be considered $750,000 or more,” Tucci said. “There’s still some nice homes for $1.5 million but I wouldn’t call them luxury.”

Barry, who specializes in Rancho Santa Fe property, said that “luxury to me is anything north of $5 million,” adding that she has two pending sales for more than $10 million.

“There’s a greater pool of wealth than there was prior to the pandemic,” Barry said.

Layne said that “luxury is really a concept. “It’s not a price,” Layne said. “It’s just the eye of the beholder.”

The median price of a single-family home in San Diego County was $849,000 in January, down from $880,000 in January 2022. The median price before the most recent downturn was almost $1 million.

“I feel almost silly saying a million dollars doesn’t buy you as much as you think because it’s a lot of money,” Balikian said. “In the luxury market, it’s all relative. For people coming from the Bay Area, we still seem like a value. That’s also true for Los Angeles and Orange County.”

In the rapid run-up of home prices that characterized the general housing market until late 2022, million-dollar homes were becoming more common, according to Today’s Homeowner, a broadcast outlet that monitors housing costs and trends.

The number of million-dollar homes in San Diego increased by 17{30865861d187b3c2e200beb8a3ec9b8456840e314f1db0709bac7c430cb25d05} from 2015 to 2021 and homes of $1 million or more accounted for 23.8{30865861d187b3c2e200beb8a3ec9b8456840e314f1db0709bac7c430cb25d05} of San Diego’s housing market, according to Today’s Homeowner – a price that only 16.3{30865861d187b3c2e200beb8a3ec9b8456840e314f1db0709bac7c430cb25d05} of San Diego residents could afford.

Younger Buyers

Unless the inventory improves, Tucci said that she expects few changes in the luxury market in the immediate future.

“Hopefully there will be a little more inventory to choose from in the next couple of months but other than that, I don’t see any major changes,” Tucci said.

Balikian of Compass said that she expects the market for luxury homes to get even better now that things appear to be settling down.

“It’s just a matter of time until things boom further. You’re seeing a lot of intellectual capital coming into our city and there is generally a correlation between intellectual talent and property values.”

The demographics of luxury home buyers has also shifted, Balikian said, with an influx of younger people buying luxury homes.

So too have the specifics of what luxury home buyers want in a home. Generally, they prefer newer homes with a modern design and open floor plans,  dedicated space to work from home, and they want “turnkey homes” that don’t require any work, said Nick Condos, a luxury real estate specialist with CMO Combs Group.