This year has been a wild ride for just about everyone in real estate, but the high-end market has been particularly curious. Some expensive places, such as Manhattan, have sputtered. On the other hand, pandemic-prompted work at home orders have allowed well-heeled buyers in coastal cities to flood into more remote and affordable regions.
All of which is to say that while the end of the pandemic is only just barely coming into view now, it’s already abundantly clear that 2020’s crises have reshuffled the world of luxury real estate.
To get a better sense of what’s going on and what to expect in the coming months, Inman recently sat down for a phone conversation with Philip White, president and CEO of Sotheby’s International Realty. White’s take on the market is that consumer preferences are changing and agents need to adapt, but that overall the market is doing well and should see continued strength into 2021.
Below is a version of Inman’s conversation with White that has been lightly edited for length and clarity.
Inman: Talk to me about what you broadly see happening in the market for the remainder of this year and into next year. Is the strong market we’ve seen in 2020 going to continue, or do you see change on the horizon.
We had a great Q1, Q2 was COVID. We had a very robust Q3 and [closed U.S. sales volume was up 61.8 percent year-over-year] for Sotheby’s International Realty, which was pretty remarkable. We’re feeling really good about the fourth quarter. Even into November, even into this week, we’re seeing demand. So I think we’re going to finish the year strong. I’m sure I’m going to have a record year for Sotheby’s International Realty.
As we look into 2021, obviously nobody has a crystal ball, but [the National Association of Realtors] is forecasting pretty robust growth. I think what we’re most excited about is getting back to 6 million home sales a year.
We’re starting to trend back that way. The peak before the last financial crisis was around 7 million. And then we’ve been hovering in the low 5 millions. Six is going to be a big increase. We’re excited about that for 2021 and beyond.
So the question would be what’s prompting that, and I think I’ve got to give credit to the Federal Reserve. Interest rates are just so low; you can get a 30-year rate for less than 3 percent. We haven’t seen that in a long time. That really is driving up demand in a lot of these transactions.
That coupled with COVID has made people rethink their lifestyles. We’re seeing societal shifts. In suburban markets, which in some cases had been pretty slow, like Greenwich, Connecticut, demand has just really increased dramatically.
There’s been a lot of discussion this year about people wanting a home office or more outdoor space. It seems pretty clear that everyone is looking for a more comfortable living situation. But talk to me about what higher-end buyers in particular are looking for.
People have figured out that they can work more remotely. I think they’re thinking, “Even post-vaccine we’re not going to go back to the way we were.” I don’t think people would be investing this kind of money in a new house or a second home expecting that life will just automatically revert back to the way it was.
I think underlying all of this there’s this thought that people are leaving the cities. But I’m really not seeing that that dramatically. We’re in New York City and Chicago and I’m having a great year. In Los Angeles, and San Francisco, too.
Yes Manhattan is still down but it’s less down than it was. It’s coming back to some degree. Certainly not back to where it was. But people are just rethinking their lifestyles.
You mentioned cities. Is part of what’s going on there because you tend to work with higher-value transactions? So if you’re a struggling person in San Francisco maybe you took this opportunity to move to Austin or Boise. But if you have the money, you could upgrade in San Francisco itself.
There’s some of that. But real estate is spurred by opportunity. And certainly I’ve looked at inventory in New York, even less than a million dollars, and it seems well-priced. I think that’s probably getting people off the fence as well. I’m not suggesting there’s this mass cost reduction there, but in my mind, it’s probably a great opportunity, if you live in New York City, to look.
Take Miami as an example. Single family home sales are up 89 percent compared to Q2. Now Q2 obviously was COVID. But that’s 89 percent in Q3 above Q2 in the 500-plus price range. So it’s not just high-end even though the average sales price is up in that market about 15 percent.
Even in Chicago in September, closed sales were up year-over-year about 30 percent. So it’s not just the suburbs. There’s a shift happening. People are rethinking home.
Miami and Chicago are both cities with a lot of high-rise development. Are you seeing much interest in condos and downtown living?
What we’ve started to see recently is more international activity and they do kind of tend to be more attracted to the condominium lifestyle. Even in New York City, we’re seeing Chinese buyers. I think that’s opportunity speaking a little bit. They see an opportunity that this is potentially a good time to buy condominiums.
The condominium market still is strong. And many of the condos have full amenities. So if, God forbid, there’s another lockdown or they’re changing their lifestyle, they don’t have to go very far to enjoy some of the finer things in life. A gym, in-room dining if it’s connected to a hotel. Those in-room services are available.
Over the next months and year, do you see the luxury end of the market outperforming or under performing the broader market?
I was kind of saying at the outset of COVID back in March that I had lived through the 2008 financial crisis and I clearly saw the high end lead us out of that. That was a real estate recession however — this is not. But I really felt like we would probably see the same dynamic. But I didn’t realize it would be as robust as it has been.
Even NAR is suggesting that the high end is outperforming the general market. And that could potentially be somewhat inventory related. I think the inventory under a half a million is less abundant.
I would think in November things would maybe have cooled down but they haven’t. The trend is still just very positive. And it’s even more so for the high end. It is outperforming.
One thing that keeps coming to mind is inventory, which seems to be the weakest link here. In 2021 are we still going to have inventory shortages, or are more sellers going to take the leap and get into the market?
Obviously houses are coming on the market. I think the issue is they’re just selling much quicker. According to NAR, listings are averaging 21 days on the market. That was in September. So they’re selling 34 percent faster than the prior year according to NAR.
But at the same time these low mortgage rates are creating shifts. These low rates, I think, in some ways are starting to unlock this housing supply.
But you are right. I can’t deny the fact that inventory is short in some areas. I was on the phone Saturday with an agent in the Woodlands area of Houston and she said that she was selling a lot more new homes than she would ordinarily because of the lack of inventory.
That part of the real estate market is benefiting from less resale inventory being available. And we need new home construction to come back.
Do you think any of the trends we’ve observed during the pandemic will stick around? Are there any permanent changes from all of this?
I think the most immediate one is going to be the reliance of virtual technology. It’s going to be virtual ways to communicate with clients. And then I think families spending more time together. I think we’ll continue to see that post-pandemic.
I think a lot of it will be virtual. Virtual technology, 3D imaging for properties. Augmented reality. And then I think there will be new technologies developed to really enhance the real estate sales process.
We’re excited about that dynamic.
Do you have suggestions or advice for agents who might want to work in the niche you do so well, that higher-end market? What would you tell people who want to specialize in that area at this particular moment?
At this moment, if someone wants to get into the luxury space I think nothing takes the place of really knowing the market. So wherever they may be, if they can become an expert in a particular area, concentrate on that.
Buyers and sellers gravitate to people who really have a deep understanding of the market — what things are worth, how to value things. That’s the first order of business.
The second one is developing your sphere of influence. You have to socialize with the appropriate people and build your customer base.
I think the third most important thing is just to provide great service. I think high-end buyers really, for the most part, value somebody that provides great service and they can count on them.
Those are sort of the three lessons that I would suggest: Know the market, build your sphere of influence and really just provide the best possible service you can.
Update: This post was updated after publication with additional information regarding Sotheby’s third quarter sales figures.