The luxury home market in Massachusetts is making a comeback. In 2012 sales of single family homes priced at $1 million and above increased 27% compared to 2011. In fact, the sales of luxury homes are at their highest level since 2005.
As we showed in our Year End Housing Report, overall home sales in Massachusetts rose 20% year over year, and luxury home sales contributed to this increase. 2012 housing numbers reveal a renewed confidence in the housing market.
Why the Increase in Luxury Home Sales?
One reason luxury home sale prices are up is that the inventory is down. Listings of homes in Massachusetts priced $1 million or above have dropped 8% compared to 2011. This low inventory is due in part to some home sellers being hesitant to put their homes on the market because they’re expecting home values to increase in years to come.
And although building permits for new home construction in Massachusetts were up 44% in 2012 compared to 2011, they’re still well below what they were in previous years. So with fewer luxury homes for buyers to choose from, there has been increased competition for homes that are available for sale.
Low interest rates for jumbo loans are another reason there are more luxury home buyers. Jumbo loans, also known as non-conforming loans, are loans above $417,000 that don’t conform to loan limits Fannie Mae and Freddie Mac set. Since these loans don’t conform to the limits, they can’t be sold to Fannie Mae or Freddie Mac, which means the bank takes on the risk for the loans. From 2008 to 2011 banks were scared to offer jumbo loans because they didn’t want to take the risk involved after the housing crisis.
Now even though there are tighter lending guidelines and the housing market is stabilizing, banks are offering jumbo loans again. Jumbo loan rates are now just a quarter or half point above conforming mortgage rates—which are at record lows. This allows more buyers to purchase luxury homes at very good rates.
With home prices showing an increase in many towns in Massachusetts in 2012, home buyers are taking advantage of getting more home for their money at a much lower interest rates than during the early 2000s. This means the monthly payment on a home priced at $1 million would be $3,737*–a savings of thousands of dollars compared to what the monthly payment would have been just a few years ago. Home buyers want to get into the market before the rates—and home prices –really begin to climb.
The luxury home market is booming in many towns in the metro Boston area. In Weston, single family home sales increased 29%. In Wellesley, 26% more homes sold in 2012 than 2011. Home prices in the luxury sector increased in some towns as well.
Towns with price increases in the luxury market in include Brookline, with the average selling price up 9%, at $1,391,904. In Cambridge, the average price for a single family home was $1,128,181, an increase of 8% compared to 2011; and on the Cape, the average price for a single family home in Osterville increased 18%, to $1,020,398.
A Great Time to Buy a Luxury Home
You can get a lot of high-end amenities and custom features in a luxury home. Many of these homes also come with eco-friendly features that save on energy costs in the long run. And luxury homes tend to be in premium locations, with good commutes and easy access to shopping, parks, and entertainment.
Some home buyers may think buying a luxury home is more complicated than buying a non-luxury home. But there really aren’t many differences between the two. The main difference is that the down payment on a luxury home tends to be higher, from 20% up to 50% in some cases. As with buying any type of home, having a buyer’s agent work with you when buying a luxury home is imperative. A buyer’s agent will look out for your best interests, let you know about upcoming luxury listings before they hit the market, do most of the legwork for you, and negotiate the best price for you.
The median price for a luxury home in Massachusetts has held steady at $1.35 million for the past 3 years, so now’s the time to buy a luxury home before interest rates and prices climb. Luxury homes are also selling faster than they have since 2008. The average days on market for a luxury home are down 6% from 2011 so buyers should be ready to make an offer when they see a home they want.
*30 year fixed interest, principal and interest, with 20% down based on rate as of this writing.