Behind the Luxury Real Estate Market Boom

The factors driving the hottest luxury real estate markets in memory have lined up to create a force that is no longer a by-product of our economy, but an economic driver on its own. Real estate has always been a cornerstone of the American economy, and in recent years, due to historically low interest rates and the declines in the stock market, it has been real estate that has fueled the nation's economic engine. With the wealth the Baby Boomers have acquired, including equity in their homes and inheritances, luxury homes have become an achievable goal for many.

What are the factors that are driving the luxury home market?

High-end consumers have lost confidence in the stock market and view real estate as a more sound investment. Real estate can be leveraged, can have tax benefits and still be appreciating in value at an unprecedented rate, making it a very sound investment decision.

The Baby Boomers born between 1946 and 1964, are moving into luxury properties as they approach their retirement years (56 years and older). With their spending power increasing over the next several years, experts believe that luxury home sales will continue to increase. In addition, as they become empty nesters, their buying habits tend towards more personal luxury spending.

Household incomes are increasing. The number of household earning at least $100,000 annually will climb by the end of this decade. That means a significant increase in the number of households able to purchase luxury homes, particularly as low interest rates make luxury homes more affordable.

Low interest rates have increased luxury home sales. Historically low interest rates have had a positive impact on real estate. The last few years have represented an unprecedented opportunity to trade-up to the luxury category, using the built-up equity and significant value appreciation of a previous home.

And where are the hottest luxury home markets? California leads the nation by a huge spread - over $12 billion in luxury home sales in 2003. Coming up second is Florida where the sales were just over $2 billion. The top five is rounded out by Massachusetts, Illinois and New Jersey with, surprisingly, New York at number seven.