High-End Housing is Back, and For Now, It’s Outperforming

Alongside the broad-based 2H20 surge in homes sales, home prices and housing demand more generally, a notable undertone has been relative outperformance within the high-end segment of the market. What had easily been the most subdued piece of the housing puzzle in 2018 and 2019 has shifted to an outsized contributor of growth. Similar to the more discretionary nature of the high-end, it is not surprising that second home sales are also growing at a sharply above-average pace. 
 
With the caveat that data from the National Association of Realtors related to sales growth by price range is incredibly volatile and in aggregate often at odds with its nationwide existing home sales measures, September and October data jumped off the page with north of 100% year-over-year growth reported for homes $1 million and above. While the share of unit transactions completed in October at this price point represented a somewhat modest 5% of the total, it was up from 3% a year ago. Likewise, loan-level data on GSE purchase originations suggests second home purchase mortgages increased 69% the last two months. 
 
In a similar vein, our Real Estate Broker Survey has also signaled outsized growth in homebuyer demand in the high-end segment over the course of 2020. Not to suggest that entry-level demand has faltered, as it remains robust, but the spread between our entry-level and high-end homebuyer demand ratings has narrowed meaningfully since February. 
 
In our view, the primary catalyst to strengthening high-end demand is no different than the broader market – mortgage rates that have continuously reached new record lows throughout 2020. That said, the high-end segment also appears to be incrementally benefiting from factors such as pandemic-driven mobility of luxury consumers out of high-cost urban areas, the desire and need for larger homes to accommodate work-and-school-from-home arrangements, and the wealth effect of a rising stock market. 
 
Although some level of discretionary demand has clearly been pulled forward by the pandemic, the backdrop of record-low mortgage rates, accelerating home prices, rising confidence and larger space requirements suggest momentum will likely persist into early 2021, in our view.