The Low Inventory Factor: Post-Peak Global Sales and Pricing Stay Stable

There was a big rush for luxury rural homes during the pandemic, as people swapped city life for country and coastal spots and slower living. But with city slickers returning to cities—for work and play—the markets all over are staying strong, due in large part to inventory shortages.

In Cape Cod and the greater Boston area, for example, the pandemic era saw huge demand for resort communities from buyers looking for high-end multigenerational homes.

“Those buyers were typically older with plans to buy in 2024-25 but the pandemic brought them forward,” said Emily Clark, president of Berkshire Hathaway HomeServices Robert Paul Properties in Cape Cod and Boston. The result: depleted inventory. Now, those who are no longer using their homes year-round usually rent them out, Clark said.

Inventory levels aren’t likely to rise as long as interest rates creep up. Clark said about 40% of the market purchases in Cape Cod and

In the New Jersey area, prices in the $1 million-plus sector are growing, with houses bought in 2021 now worth 25% more the Boston area are with loans, and homeowners are less likely to sell as it means moving into a higher mortgage interest rate for their next home.

New Jersey’s suburbs and beach towns show a similar picture. Set about 65 miles from Manhattan, the region is accessible by ferry, car, train and bus. Its accessibility and lifestyle as well as the prosperity of buyers underpin its hot market. Three years after demand skyrocketed for New Jersey beach towns, inventory levels are low while houses continue to sell at record prices, and get snapped up quickly, said Richard F. Martel Jr., senior vice president and regional manager, Berkshire Hathaway HomeServices Fox & Roach, REALTORS® in New Jersey.

“People who bought here during the pandemic are staying and upgrading their homes [adding pools etcetera], while some are even trading up to larger properties in the area,” Martel said. While he agreed that higher interest rates affect supply, there are still plenty of buyers willing to pay over the asking price. “Prices keep rising in the luxury market [$1 million-plus], with properties bought in 2021 now at least 25% more expensive,” Martel said.

In Chicago, that rural boomerang has led to an increase in city and suburban

Spotlight

Well-heeled foreign buyers are looking for high-end vacation homes they’ll happily use for more of the year, and they’re finding them in Los Cabos.

“We’re finding that retirees, investors and a huge increase in European clients are interested in this region,” said Ian Gengos, owner of Berkshire Hathaway HomeServices Baja Real Estate. “They’ll spend six-plus months here because the weather is great and there’s something for everyone, whether you’re a foodie, a wellness seeker or an outdoor enthusiast.”

The types of homes available are just as varied as the buyers.

“There’s something for someone who wants a vacation condo, a principal residence or a collector property,” he said. “It’s a jewel-in-the-crown kind of place to add to your portfolio.”

But what drives home prices upward from $20 million is amenities, location and branding from such developers as Rosewood, Four Seasons, Aman Resorts and the St. Regis.

“There are large pieces of available oceanfront land and this is a limited—and hot—commodity,” he said.

The easy access to airports—the international airport is 90 minutes away in La Paz and Los Angeles is a mere 90-minute flight—and marinas that can accommodate ultra-luxury private yachts is another draw for those purchasing ultra-luxury properties.

During the coming year, Gengos predicts that there will be a small slowdown in terms of activity but no significant decrease in price point. “Our inventory has become somewhat depleted,” he said. “But we are replenishing to a degree.”

What sets Los Cabos apart, ultimately, is the plethora of aspirational properties in the region.

“People don’t want to go too far with their family to enjoy their lifestyle,” he said. “That’s become a real currency.” buyers. “The return to work has been one of the biggest drivers of real estate demand in the luxury bracket. We now realize that our quality of life is so much better without a long commute, and people who work in the city are finding a better work-life balance by living in the city,” said Diane Glass, CEO of Berkshire Hathaway HomeServices Chicago. But, she added, “in a post-pandemic world, the suburbs have held their ground as luxury strongholds. Suburban luxury home prices are still near 2022 levels, and our agents are seeing a greater percentage of cash buyers.” There’s a steady supply of larger suburban listings priced at $4 million and above for buyers who want an extraordinary showpiece home on larger plots. “Overall, the slowdown in demand has been met by lower inventory, so we are still seeing short market times and even multiple offers. With the market cooling, there are opportunities for luxury buyers in Chicago and the suburbs as well as in Harbor Country, Michigan,” Glass added.

In Philadelphia and its suburbs, the trend of hybrid work and working from home means that people continue to have the flexibility to live and work differently, said Debbie McCabe, senior vice president and regional manager, Berkshire Hathaway HomeServices Fox & Roach, REALTORS®. House prices have continued to rise, fueled by the lack of inventory seen elsewhere. The only “bargains” at the luxury level are homes that need work. “There are many luxury properties that require updating. Many buyers today are not willing to take the time and money to do the work.” On the other hand, “we see homes that have been updated selling for top dollar,” she noted.

Outside the U.S., in the quaint colonial town of San Miguel de Allende in Mexico—famed for its artist community and an exciting culinary scene—the pace of the market has slowed slightly after record-breaking years, but it’s hardly stalling. “Most luxury home purchases we deal with are second homes bought by retirees from the U.S. and Canada. They buy with cash, so they are not affected by rising interest rates,” said Greg Gunter, a broker and owner of Berkshire Hathaway HomeServices Colonial Homes San Miguel. “In 2021, we had a record year for sales following the pandemic travel bans, and last year there were three times the number of buyers purchasing homes priced over $1 million, compared with the year before. In 2023, it’s been harder to persuade people to buy overseas in a time of global economic uncertainty, but there have been no price reductions,” he said, adding that people only usually sell for health reasons, death or divorce.

High-end home sales in Montreal are still happening, but there are fewer of them, according to Sacha Brosseau, founder and CEO, Berkshire Hathaway HomeServices Québec.

“Rising interest rates in Canada have made people think twice before moving. Luxury home sales in Montreal and the surrounding areas [defined as more than C$2 million] are indeed lower than before,” Brosseau said. He predicts that when interest rates start to d ecline and keeping money sitting in the bank is not as advantageous, the number of sales in the luxury markets will increase as inventory rises.

After a frenzy, the luxury markets in New York City and its northern suburbs and exurbs are returning to normal—albeit with less inventory.

In the markets north of New York City— which saw frequent bidding wars during Covid-19—demand is strong, while inventory is not.

The luxury market in suburban Westchester County, defined as $3 million and up, “remains a very vibrant market, with very, very low inventory,” said Candace Adams, president and CEO, Berkshire Hathaway HomeServices New England Properties, New York Properties, Hudson Valley Properties. The Hudson Valley, north of Westchester, is still seeing a steady flow of luxury buyers migrating out of the city, but inventory is down there, too.

“Buyers are looking for more space still, an at-home office, they love pools and any type of resort living in their own home, great schools and good commutability. Now that means up to two hours,” she said.

Houses priced well still draw lots of interest, she said, citing a recent $1.8 million Westchester home that had 32 showings and 11 offers. In general, though, homes that got 10 offers during the peak might be getting five offers today.

Along with New York City, buyers are coming from California, Texas, Nevada and “some boomerang from Florida,” she said. “It’s political and it’s climate change. The remote workplace has really supported that market, too.”

The number of sales outside the city is down significantly, though. In some cases it is due to a lack of inventory. In Westchester, overall sales are down 37% year over year; in Hudson Valley, they’re down 21%.

The rental market for luxury properties in Westchester, especially for homes valued between $1.5 million and $3 million, remains strong, she said.

The demand for second homes has moderated slightly. “People are still maintaining some sort of presence in New York City, but they may be downsizing to a studio or a one-bedroom,” she said. That is fueling the pied-à-terre market in New York City, according to Steven James, president and CEO, Berkshire Hathaway HomeServices New York Properties.

New York City is far from slowing, he said, pointing out that cash is king. Two-thirds of recent luxury sales (defined as $4.6 million and above, with a $6.7 million median) in Manhattan were all cash, he said. “It’s a very healthy market.” Inventory during the second quarter of 2023 was down year over year but up over the previous quarter, he said. “There is a tiny bit more inventory, but it’s not great stuff. Properties that need work are sitting. In my personal book, that’s where the bargains are.”

He also sees bargains on Park Avenue and other parts of the Upper East Side. “Prices have come down, sometimes enormously,” he said. The Upper West Side is still very strong, and so is downtown, “especially the new developments, and it’s usually younger buyers.” Overall, “there’s been a bit of a standoff between buyers and sellers,” with the market being a “breath away” from a seller’s market.

Luxury buyers in New York City are mostly local, he said, but he is also seeing buyers from the West Coast and the Midwest. “They ostensibly come for a pied-à-terre, but I think it’s more of a test of where they want to move to,” he said. Foreign buyers represent less than 5% of the luxury pool, he said.

“I would say the market is cautiously steady,” he said.