About a week ago, I hauled off in search of data on the luxury end of the housing market in Santa Fe as a sort-of self-imposed homework assignment.
At the top end of the market in Santa Fe (let’s define it for now as $3MM and above) property pricing can be an interesting exercise because of scarce data. Why? Many sales at the top end take place confidentially, to one degree or another. Some transactions are effected off the MLS system altogether, are not listed, and are not reported publicly. Other listings are visible only within a single firm. Privacy concerns typically govern this: sellers may not want their motive disclosed and buyers may not want prices known.
Less Consistent Price Appreciation
In my search for data, I went back to 2017 to look at the category of the luxury market to track price appreciation to the present. That’d surely be supportive to my pricing thoughts because I’d show steady appreciation for the high-end category, just like in the rest of the market. Right?
Not really.
From the beginning of 2017 through October 18, 2023, the average home price for the luxury category (again, over $3MM) increased by a total of 22.50% (depicted via the orange bars and adjacent values below). Compared to the rocket-like increases in the rest of the market, this level of price growth seemed tepid.
So I looked at a few other measures.
Sales volumes (in blue) seemed to increase at a normal clip, from eight homes sold over $3MM in 2017 to 33 in 2022, with what looks like a bit of a slowdown this year. The time it took for these properties to sell (average days on market, in grey) declined steadily. A decline in average days on market is usually a bullish measure. And the oft-abused (in my opinion) indicator of price per square foot (the yellow line at top) grew by 43.68% during this period, to land at $792.61. Overall, it’s inconclusive.
But it can’t be ignored: the top end of the market has not behaved like the rest of the market, with less crazy-insane appreciation over the past few years. At a minimum, it points to a need to be extremely careful in setting prices in the luxury market, where data is scarce.
So I looked at inventory.
Relatively Greater Inventory at the Top
Recently, inventory at top end has remained steady and has decoupled from the tight supply in rest of the market. In relative terms, it’s plentiful. (I wrote here that high rates are constraining supply for the middle of the market; those with low-rate loans are staying put.) Owners’ finances at this level aren’t tied to mortgage markets and they are much freer to move or sell when they desire, resulting in more normal inventory.
Anecdotal observations support the conclusion that there is at least adequate luxury inventory: MLS listings in Santa Fe are plentiful from $3.5MM to $25MM right now. Data supplied by the Santa Fe Association of Realtors (SFAR) to Sotheby’s shows that at the end of Q3 2023, we had 92 single-family homes and condos over $2MM (this is simply their break point) on the market. At Q3 2022, that number was 87. Normally, the high-end numbers are perhaps a smaller proportion of total inventory. Read the full Sotheby’s market report here.
What’s ahead?
Steady inventory at the top end of the market makes properly researching a pricing strategy THE critical component to a quality execution — as luxury sellers seek to exit their homes in a reasonable period of time. Very often, it’s tempting to set prices in this category by the “this is what I want for it” method or the “wouldn’t it be nice if I could get X for it” method. Right now, the data I see on the luxury market in Santa Fe does not support that. Rather, it supports the practice of setting asking-price levels just above where one wants a transaction to take place and sticking to one’s guns in negotiations.
The decoupling we see in the market means that the top is not behaving the same way the rest of the market is, so well-researched strategies and prudence are warranted.
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