Is there a CRASH going on in the Luxury Market - Wade Giles Gives His Take

The luxury market is showing major signs of slowing down. How does this impact you as a potential seller or buyer? We’ve got Wade Giles of Giles Group Austin and we’re going to cover what has happened in the luxury market, how the inventory is, what we’re expecting in the near future, and what opportunities there are for you as a buyer or seller in the luxury real estate market.

Luxury Market in Austin

There are two components of the luxury real estate market. We've got luxury property which is one and a half to two million. There's the other one, which is spec luxury. People are always looking for what's fresh, and not going back and being like, wait a minute, this house at this number actually is a good value.

People are always asking what's going to happen with this market. I met with this investor yesterday, who runs the capital fund, and his whole plan was to buy new builds. He says we're not at the bottom yet. He's bought in Silicon Valley for years. 

New builds from 500 to one and a half, but he had some good insight on it. He thinks that we're going to hit a 25% drop. When you look at a 25% drop, that's a 25% drop from February. We're not the only distressed people are the people that have owned a luxury home for less than one year and need to move, which is very few people and builders. 

RELATED: Austin Luxury Real Estate Market Update (RealtyHack)

Austin Luxury Homes Inventory

There are 350 listings on ALN at the moment. That's the price of 1.5 million plus in order to be a listing on ALN. For people who don't know, ALN is Austin Luxury Network, which is a private network for agents to look at off-market, and in order to be a listing in ALN, the listing must be 1.5 million.

A little bit years ago, before the pandemic ALN was a great place to do some pre-marketing on a property or maybe you're still negotiating on price with your seller. It's a great way to test the market.

A lot of people had a lot of success with clients willing to pay a little bit more than what it would be had gone on MLS but, for tax purposes or the panache exclusivity the cache off the market, that's an appeal for some buyers. But also the prices weren't. People weren't pushing the market by 10 or 15%.

Pre-pandemic, they were 5% above where they would like to list it. Before they went to MLS and see what they could do. 

During the pandemic, ALN, the private market was being used a little bit more sparingly, you could find some deals on there. But again, it was back to their prices were probably quite a bit higher than they would be but at the same time, if it went on MLS, there was no telling what would have happened when it was opened up to Zillow and real structure and so on and so forth.

People were willing to take that risk then, but now that the market has shifted, I find that ALN oftentimes, a lot of the properties on there are just crazy overpriced, and agents are really reluctant to put them onto the MLS because they know they're going to just be sitting back. 

There are 545 active listings above 2 million in our entire MLS system. There are currently 73 properties that are pending or active under contract. In the last 90 days, we've had 147 closings, and in the past 30 days, we've had 38 closings. Things are starting to double down now to break that down even further.

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Why Are People Selling Their Homes?

It's kind of across the board. Some people are moving. Some people just want to downsize and they feel as though this isn't gonna this is gonna get worse before it gets better. They want to go ahead and get ahead of it as much as possible. Some are feeling like hey, we still have a tremendous amount of equity in our homes. Either they own their homes outright or they've got tremendous equity.

Inflation Impacts Sales

There was a big conversation a few months ago that rates were climbing through the end of the year, and then we started to see things stabilize and taper off. But especially after yesterday's news, that's very evident that that's probably not going to happen. And historically speaking, the Fed has maintained high rates over the last several downturns in the market. 

They've maintained that high rate number even while inflation goes down for 8.7 months, so once we start to see a decrease in inflation and that number starts to go down, that doesn't mean that rates are immediately going to go down. They're gonna stay there. Because, you know, the Feds basically saying it's short-term pain of a couple of years of just really crippling property values and what's to come.

These guys have been holding their high-interest rates, when they finish the home, they refinance it if they didn't take sell it, but they're higher interest rates holding costs. And their banks are looking at them like this thing's gotta get off the book. And matches that a lot. Most of these guys, and then that two to 4 million range. 

The opportunity here is to get rid of this thing, even if you don't make a dime, or even lose some money and get back into something else. Because nine months to 14 months later, by most accounts, we won't have this problem for sure.

Builder Inventory

If you're a builder and had an opportunity to be buying lots in there right now, your product will be coming out, hopefully, on the other side of this. You gotta get out the stuff you have right now. In a lot of ways, this is good, because I think builders, a lot of spec builders have just gotten really lazy with their products. 

Part of that is supply chain issues and the cost increases that have come up. Builders need to start accepting the fact that their margins are going to be a little bit less than what they were in the past. They're gonna have to take some of that profit. 

The Future of the Austin Luxury Market

In the luxury market, unless they have a good million and a half down payment. It's hard to justify, but you also can argue about it. People get caught up on the rate.  

A $2 million house in 78704 six months ago that would have sold for probably 10% over $200,000 may or may not make an appraisal, you're paying for title policy. Versus today a $2 million house, you might be able to get it for a million seven or a million eight. You're not paying the title policy. You're not paying for the survey. 

You're not paying for anything out of Pocket. Three years from now, you're probably gonna be up 30%. We’re not worried about Austin long term, it’s gonna be a bumpy ride for a while and we hope it’s just that little ride.

The 50-year average historical average on interest rates is 7.7% which is kind of like where we are right now. It's a lot for us. It's a big adjustment for us right now. It's all happened so quickly. But historically speaking, we are still well within reason. If rates get back down to the two and 3% range, that probably means that something really bad has happened.

Connect with Wade Giles


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