The Impact of the Luxury Market


Steve Burch
Senior Vice President, John Burns Real Estate Consulting


With waterfall islands, floor to ceiling windows, walls of glass, retractable full wall sliding doors, gourmet outdoor/indoor kitchens, separate prep spaces and oversized dual laundry areas fit for royalty, the luxury housing market features the full range of innovation and style. Sure, it’s predictable as the price point of homes increases the amount of innovation and application of luxury appointments also increases. What is really interesting is to see how these innovations make their way into the rest of the market in a domino effect. It’s almost as though the high-end of the market is the test laboratory for new home innovation across markets.

The Phoenix metro housing market continues to be relatively affordable certainly when compared to markets in California. New home median prices in the Phoenix metro market have been gaining strength over the past few years. At the high-end of the market, about 6 percent of new and resale transactions are over $550,000 along with nearly 1.5 percent over $1 million. While the luxury portion of the market is relatively small in terms of volume, it exerts an outsized impact on the overall market.

Across the U.S. today, it’s not volume that defines the luxury market — it’s design and style that truly defines it. As price increases and crosses the $1 million mark, communities move from featuring well designed, semi-custom homes to fully unique architect designed homes. This shift changes the feel of the million dollar plus communities featuring a wide-range of much more contemporary styles and considerably more variety. The Phoenix metro market follows this trend with luxury starting at the $1 million price point – this is where full customization and high style really begins.
Demand for luxury is essentially coming from the economic growth in the Phoenix metro market. Over the past 12 months, 67.3K jobs were added for a very strong 3.6 percent growth rate. Strong job growth particularly in the high dollar sectors such as Financials and, Information Technology, as well as Professional and Business services, represent a significant source of continued demand for high-end, luxury living.

Perceptions of Luxury Price Points
Where luxury begins varies dramatically by market. Where $1 million plus is a defining level in the Phoenix metro market, Orange County, California is very different. The Orange County median re-sale home price currently stands at $720,000 and the median new home price is $832,500. To California buyers familiar with these price levels, a $1 million plus price point seems like a bargain. Quite simply your home buying dollar goes much further in Arizona. This is one of the reasons that California buyers find Arizona so attractive.

Conversely, in Chicago the median re-sale home price is $246,800 and the median new home price is $332,900 — prices that are very much in line with Phoenix metro. Accordingly, buyers coming to the Phoenix metro market from Chicago may perceive the $1 million plus market much like Phoenix metro buyers would.

The most prolific buyers of $1 million plus properties in the Phoenix metro market are mature couples (age 50+) and retirees. Mature couples represent 21 percent of the buyers in the overall market yet they represent an outsized 40 percent of the $1 million plus transactions. Similarly, retirees represent 19 percent of the total market and 26 percent of the million plus transactions. On the other hand, family buyers represent only 16 percent of $1 million plus transactions. Not an inconsiderable number, but considerably less than the 45 percent captured by mature couples and retirees. Investors are also a significant source of sales for luxury homes in Phoenix metro. Investor sales in the market now represent approximately 23 percent of the transactions.

Location and Lot Size
A tradition among luxury buyers has been to go ‘out there’ and build the estate model. A fully protected and gated home ‘compound’ on a very large lot – sometimes multiple acres. And at the $1 million plus price point these homes remain an important part of the market.

However, the location preference for these homes remains quite concentrated in area. The vast majority of recent $1 million plus transactions has occurred in a fairly tight corridor funning from Scottsdale, Paradise Valley, North Phoenix up through Carefree. So, the new transactions are following a similar pattern as the re-sale transactions. So what? New home buyers continue to favor the same corridors that previous buyers have. In response, new home buyers are beginning to create high feature homes on somewhat smaller footprints. For example, in transactions in the last 12 months between $1 million and $1.2 million, the average lot size of the re-sale was 41,773 sq. ft. versus an average lot size for new homes of 27,749 sq. ft. — still large, but considerably smaller. These homebuyers aren’t giving up luxury, but location is becoming part of the amenity.
Top Design Trends
Outdoor living in Arizona has always been a key element in home design — luxury homes have always led this trend. A significant part of every luxury home has been the water feature, once just a pool, now a true water feature. Well-appointed luxury homes now feature infinity pools or waterfalls as part of the package: the pool is as much a part of the entertainment package as it is for exercise and recreation.

Bringing the outside in. A variety of very innovative features are available to bring the outdoors inside the home, but perhaps the most dramatic are retractable sliding walls of glass. These sliding walls go well beyond the old sliding doors to literally open a whole portion of the home to the outside. Innovative accordion windows in the kitchen accomplish a similar feat on a smaller level.

Among many other unique features, such as indoor green houses, are the appointments in the kitchens. Always a central area in the home, the well-appointed luxury home is likely to feature a full gourmet kitchen outside as well as inside. Inside these homes often feature a fully functional preparation area in addition to an elaborate kitchen. Oh yes, and don’t forget the butler’s pantry.

Steve has more than 25 years in the real estate business. He provides an in-depth perspective of the U.S. housing market on behalf of John Burns Real Estate Consulting, an independent research and consulting company. Prior to joining John Burns Real Estate Consulting, Steve held a number of key strategic marketing roles with Putle Home Builders and Del Webb. Steve can be reached at 248-797-4469 or by email at


Luxury Home Seminar

FRIDAY, OCTOBER 21, 2016  –  9:00 AM TO 12:30 PM

Topics include: Property Value Analysis, Market Trends & Cycles, Determining Value, New Contract Changes, Showcasing the Property, Most Desired Amenities, Financing Options, Sellers Share Expectations and Much More.

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