If we use the 12 month average sales price per square foot chart and filter the price ranges so that only homes listed at $500,000 or higher are shown, then we see that the average $/SF reached a peak of $237 in August last year and has been moving sideways to slightly lower since then. It was $233 last month and so far in April is running at under $232. This reflects the oversupply in the higher price ranges.
Why are we seeing so many active listings above $500,000?
A theory put forward by several national analysts, particularly Stephen Kim of Barclays, is that a long term secular change is under way. They believe a wave of empty nesters is seeking to downsize, and now that the market has recovered from the crisis of 2006-2009 they are planning to do so in growing numbers. If a large number of baby boomers want to sell their suburban luxury homes at the same time, we are going to see an imbalance of supply and demand. Today's younger buyers appear to prefer density and proximity to urban facilities like shops, restaurants and entertainment. Far fewer of them play golf. In any case, can enough of the younger generations afford to live in suburban luxury even if they wanted too? Baby boomers are the ones with the equity. Generation X was badly hit by the foreclosure wave and many of the Millennials are still deciding what they want. We are seeing a rise in discretionary renting, where older homeowners sell their large homes and move into smaller rental homes. They appear to prefer upgrades and amenities to square footage. They are probably using their home equity as a source of funds to enjoy their retirement.
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