There was a shift from all-cash buyers to partially financed purchases in the luxury market while interest rates were low. It wasn’t that high-end buyers needed help; they may have simply chosen to invest their cash elsewhere while rates were low. Expect more cash purchases to return to the upper end of this market as mortgage rates increase.
The National Association of REALTORS states, “Cash buyers continued to make up a higher market share, at 28% (25% in the prior month; 23% one year ago).” Mortgage rates are unimportant to all-cash buyers.
Everyone who has seen this year’s property taxes understands how much the market has appreciated in the last year. It has far outpaced inflation in North Texas. Luxury homes often compound that appreciation – especially when rare building materials are in extremely low supply. Consequently, luxury homes became a hedge against inflation.
Property ownership is traditionally how many people generate and protect wealth. Now, property is a place to park wealth.
Imagine an escalator going up. Place a tiny castle on it. It goes up with little work or notice. This is market appreciation – it historically goes up over time (assuming condition is maintained, and regional growth is sustained).
There are currently 33 Active luxury lease properties in North Texas with list prices of $10,000 or more per month. The highest is a penthouse in Uptown for $45,000 monthly.
To those who lease a home, the market gets away from them because rent is 100% interest. A tenant is literally defined as someone with a leasehold interest in another’s real property for a period of time. Tenants are on the ground floor watching the escalator castle get smaller as appreciation takes the castle farther away.
Meanwhile, the tiny castle owner can trade properties on any floor for a bigger, newer or better version depending on equity (principal plus appreciation). The castle protected wealth to the next level of growth. In short, those with income to buy a house, should. Those who have funds to buy a luxury house, should.
There’s still a historic shortage of houses. The short-term economic factors such as interest rates can temper price increases, but it doesn’t resolve the underlying supply and demand.
Mark M. Hancock, GRI, MRP, AHWD
REALTOR, Certified New Home Sales
214-862-7212 (call or text)
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