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What’s Next for the Luxury Home Market?

After nearly two years of steady advances, we believe the run-up in high-end home prices will continue

May 14, 2014 | Our Perspectives Archive

With signs pointing to a stronger U.S. economy and global growth in 2014, J.P. Morgan anticipates that home prices, particularly in the luxury segment,1 are likely to climb steadily higher during the course of the year. 
Several important economic forces are supporting this trend: strengthening household balance sheets, mortgage rates remaining near historical lows, and solid financial market returns.
Luxury homes still less expensive than in recent history
Affordability returns to pre-crisis levels
With luxury home prices reaching new highs, buyers may fear they have missed out. But when adjusted for inflation—and given the fact low interest rates are making monthly mortgage payments more affordable—luxury home prices appear justified.


In fact, affordability is now at the same level it was in the early 2000s (before the housing bubble). This, coupled with the drivers mentioned above, makes us believe the luxury housing market in 2014 will post another year of strong performance.
Inventories have tightened, particularly in the luxury space
Many overseas buyers, few trophy properties
It’s not just increasing wealth in the United States that is driving the domestic housing market. Many overseas investors continue to perceive the U.S. housing market as a safe haven and store of wealth, thereby creating a large pool of potential buyers for luxury homes. 
At the same time, the supply of trophy properties nationwide has fallen sharply since 2008. The laws of economics tell us that, with rising demand and tight supply, prices are likely to adjust higher over the medium term.
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