Understanding the luxury market involves Covid. The market for high end homes took off because of Covid 19. While there has always been a client for luxury properties, demand increased tremendously over the past 18 months.
Upper tier homes never recovered from the Great Recession as one would have expected. The 2 driving forces for this were taxes and the internet.
Taxes and the Internet
New Jersey taxes are among the highest in the US both on a personal and a business level. Our property taxes are the highest in the nation. Additionally, NJ has a 1% sales tax on buyers who pay $1 million or more for a house. We’re also 1 of 5 States with a special Millionaire’s Tax.
Post recession technology advances allowed remote work through the internet. Most of us weren’t aware of this until we starting using Zoom 18 months ago. Because of taxes and the ability to work remotely, there’s been a migration of affluent families out of NJ. While it’s far from a stampede, it still had an effect on the market.
Covid 19 set the high end market on fire. Wealthy families along with everyone else flew out of congested urban areas and into the suburbs. Because vacation travel was no longer a safe option for years to come, the value of a luxury home near Manhattan became paramount. Bergen County, next to New York City with outstanding public and private schools, was a primary destination.
Jeff Otteau sees this as a permanent change. The boom in vacation homes supports this. In addition to a family home in the suburbs, wealthy families snapped up shore properties in NJ, Long Island and Connecticut. The term “staycation” described this precisely. Not wanting to risk travel for the foreseeable future, major investments were made in vacation homes along with rear yards which became an extension of the house with a pool thrown in.
Understanding The Luxury Market
Understanding the luxury market in Bergen County involves understanding the shift that took place from the city to the suburbs. This is also why open air floor plans are no longer in vogue. Working from home requires a quiet dedicated space and privacy. Open floor plans are simply not conducive to this.
A heightened appreciation for time together is another aspect. Working remotely at home enables families to sit down together at dinner. The time used in commuting is now spent in this way. The Wall Street Journal, among other publications, has articles written on this as a reason why no one wants to commute back into Manhattan 5 days a week. As Jeff Otteau rightly asserts, this is a fundamental and permanent change.
It’s also true that for less than you paid for your NYC penthouse, you get the privacy and peace of a suburban luxury home. People who have left NYC are being replaced by foreign investors.
The High End Market Today
The high end market today is a bit schizophrenic. In some ways it’s positive and in others negative. This is partly a function of the time of year (not as many luxury homes sell during the holidays) and a changing market.
Right now we have a very healthy ratio of homes for sale and those under contract (236 to 126). It’s roughly a 2 to 1 ratio which shows a very strong market. However, there’s an unusual spread between the average of what’s for sale ($3,842,238) and under contract ($2,161,069).
In addition, we have an inversion of how many days a home is on the market. For sale is 136, under contract 101 and sold over the past 6 months is 67.
This is all quite unusual. You’d expect a slowdown in the fall yet the ratio of for sale to under contract is very strong. At the same time, we have an inversion of how long homes are on the market.
My take on this is that the time of year has an effect, that in spite of everything there’s a strong demand for luxury homes but the market is shifting. It’s taking longer to get a home sold because things just aren’t as robust now and you’ll see the same in 2022. While next year will remain positive for sellers, it won’t be as strong as 2021. Jeff Otteau is right. The fundamental change brought on by Covid is real and this will continue to fuel the Bergen County luxury home market. It’s simply that we are shifting into a positive but less robust time.