Case Shiller v. Luxury

You may be seeing headlines like: “U.S. home prices rose for the fourth straight month in May,” but once you open the click-bait, further details show that year/year prices have actually fallen 1.7% per the 20-city Case Shiller index.

And, even after reading the fine print, it’s likely that you’re still not getting the full story.

Case Shiller only accounts for 20 cities across the country; thus, it may be irrelevant to your market (actually, it’s highly likely that the index will not reflect your home market at all).

Additionally, Case Shiller does not tell an accurate story about the luxury segment. It’s a broad-brush average of national price movement, but what we are seeing is continued bifurcation between the luxury and mass markets.

We started seeing price reductions in the luxury segment months ago, with current closing prices averaging 15% below list in the Palm Beach and Miami Beach markets.

Now why would luxury be hit harder that the mass market? Isn’t luxury ‘immune’ to downturns and mortgage rate fluctuations?

While it is true that higher price points generally reflect more unique properties and thus offer more general resilience, the word ‘luxury’ is grossly overused in the real estate industry, as are the words ‘exclusive’ ‘rare’ and ‘extraordinary.’ The abundance of properties marketed as ‘luxury’ has watered down the term’s meaning and thus confused the conversation regarding segment resilience.

Further proving that no one is immune, the enclave of Palm Beach Island, with a median sales price of over $14,000,0000, saw a 519% y/y increase in inventory for single family homes in June 2023. Across the bridge in West Palm, the 2 mile stretch South of Southern/East of US 1 called ‘SoSo’ has 73 active single family listings ranging from $559,000 to $22,300,000.

Inventory is not the problem anymore. The issue is fear. Fear of overpaying. Fear of the future. Fear of recession. Fear of interest rates. Fear of sustained inflation.

Ironically, inaction breeds more fear and eventually, a self-fulfilling prophecy emerges… unless you change the narrative.

Instead of sitting on the sidelines, take the opportunity to capitalize on pessimism and capitalize on potential for long-term growth, ignoring the bumps in the road.

"The crowd is usually wrong on the market."

-Stanley Druckenmiller