This is part of an ongoing series: What is Making the Triangle Area so Desirable?
By Erica Jevons Sizemore
There is a symbiotic relationship between wealth and real estate. According to a report produced by WealthEngine, Wealth-X and The Institute for Luxury Home Marketing (ILHM), there has been an 180% increase in luxury property ownership in a mere three-year period. The volume of wealth in the country has grown in part due to the cryptocurrency boom and surging stock markets, paired with soaring real estate prices and low interest rates. This has subsequently allowed individuals to borrow and save more, fueling a strong real estate market across the nation and across the Triangle.
Values are shifting among affluent consumers and homeowners. Buyers are flocking to cities with walkability, a focus on nature and well-rounded quality of life, with an eye for good food and a vibrant art scene; they are tech savvy and environmentally conscious. Their consumer preferences paint a picture of those redefining the marketplace and with increasing wealth many are purchasing luxury real estate. The rise of teleworking has made it possible to live and work from anywhere for many individuals. The lifestyle benefits the area has to offer that we have explored in earlier issues of this series, have made it an attractive place to be.
For companies like Beacon Street Development Company, who have been shaping the quality and character of the community since 2004, with boutique residences including The Wade, Fairview Row and now The George in Durham, set to start construction in spring 2022, the demographic evolution of the Triangle has been fascinating to watch. “It’s exciting to craft something influenced entirely by the way we live and work, and that is how we have designed The George,” says Jim Wiley, President of Beacon Street. “The interiors and exteriors reflect the demand for how people are living, given their experiences during covid, and the style and taste of those coming from other US and international markets.”
With several units already under contract at The George in downtown Durham, this seven floor condo building, with residences starting in the $400s and the highest priced units over $2m, will be among the area developments redefining the high-end real estate landscape. Wiley reminds, “When we think about the idea of luxury it is by nature something we self-define. It’s a state of great comfort built from our inward experience out – it’s how we live and what we believe in. Our buyers put value on what really means something to them. In our case, they’re placing a premium on lifestyle and value, not just square footage.”
Cutthroat Area Demand
Sixty-three percent of real estate professionals nationally expect luxury home prices to continue to rise over the next three years. Demand has surged for larger homes, vacation and second homes and property in more suburban areas during what many are calling ‘The Great Reshuffling’ over the last two years. Many buyers were inspired to finally buy their dream home during the pandemic and competed for move-in ready homes with attractive features – and sellers generated a premium for them.
In August of 2021, the Raleigh area saw steep competition for housing which yielded the most bidding wars nationally over that period with 87% of homes having multiple offers, making us the most cutthroat real estate market in the country. The typical home value in the area was also up 23.5% that month over the prior year. And while these figures reflect changes in the average home sales, all homes prices to include the luxury real estate market were impacted and saw strong appreciation.
Raleigh recently ranked sixth out of 130 local markets by the Homebuilders’ Local Opportunity Index (HLOI), which identifies regions with the best short- and long-term opportunities for investing in constructing new homes. With expensive materials and labor, however, building a new home can be anything but affordable, and because the pace of building cannot keep up with demand, buyers are willing to outbid one another for a home, driving selling prices even higher.
Despite much debate, the Raleigh-Durham market is not expected to experience cooling real estate sales due in part to the area’s emergence as a tech hub. Having started with IBM in the 1960s, today major tech companies call the area home with the Research Triangle Park as an anchor to many science and tech firms and startups. Over the last 60 years, companies have flocked to the Triangle – capped off with the addition of Apple and Google who in 2021 announced future campuses here – and we will likely see this continue. Our local tech talent accounts for over 9% of our working population, and Raleigh-Durham was ranked #3 by LinkedIn for metros whose tech communities are growing fastest. Subsequently, these tech companies come with higher wages. The new Apple facility has reported paying up to $325,000 per year for senior jobs locally, making purchasing a higher end home well within reach.
A look at the tech companies that have chosen to put down roots in the Triangle…
New Power Players
With strong demand and shrinking supply in virtually every sector of the market, we have experienced a sharp rise in home prices and inventory shortage among the high end real estate market that we would typically expect among lower-priced homes. ILHM has identified four groups of buyers driving much of this demand.
- The Baby Boomers are skipping the downsize and purchasing homes of their dreams.
- The inability to travel and life stage of the 35-40 year old Golden Millennial (those getting married or having children) has driven home buying decisions among this group.
- Rise among those Second Homeowners that began in 2020 during the start of the pandemic continues today with affluent individuals looking for a second home for investment or to align with remote work and YOLO (you only live once) mindsets.
- Many eclectic city dwellers and first-time buyer Millennials and older Gen-Zers known as Urban Repatriates are looking to capitalize on low interest rates and are seeking more square footage, outdoor spaces and have returned to purchasing downtown properties.
As these groups consider the overall quality of life and fashion in their home buying decisions, “The industry stands at the door of opportunity. With baby boomers and millennials alike seeking similar access to the truly essential; we get to differentiate and tailor our approach to place-making” according to Wiley, seeking to appeal to the lifestyle aesthetic of their buyers.
Furthermore, the stereotypes that have defined a generation of millennials (born 1981-1996) doesn’t ring true in the real estate world. With 38% of the home buyers and 72.1 million in population, millennials currently make up the largest share of homebuyers in the US. While they may have waited to make their first real estate investment, many are breaking the notion of the ‘starter’ home and instead wealthy millennials’ first purchase might be a million dollar property. Millennials are also the most educated generation in history, have higher earnings and are set to inherit more wealth than any prior generation, according to a May 2020 report by the Brookings Institute. And for the Triangle area, flush with millennials with a median age of 37.5 years, many of which not surprisingly at high earning tech jobs, the direction of the luxury real estate market may never look the same.
A Look at the Numbers
Housing prices in the US have increased 48.55% over the past 10 years (just under 5% per year, which by comparison, typically averages around 3.5-3.8% per year according to RenoFi). As their equity has increased, many sellers are stepping up into more expensive homes. Data from the National Association of Realtors (NAR) shows a 244.5% increase in the number of home sales in the US priced above $1m as of May 2021, far outpacing the increase in other price bands, including $250,000 to $500,000 which only realized a 47.9% gain over the same period.
In 2019, the median luxury home sold in the US was $1.25m and rose to $1.70m in 2021. Depending on the area of the country you are in, higher end homes can look very different from a pricing, amenities and availability standpoint. In the Triangle area, luxury real estate, defined as the top 10% of homes sold, includes properties which have closed at or above $750,000, and as of December 2021, the multiple listing service for the area has 2% of the homes for sale priced above $2m. If luxury home sales continue at their current pace and stay in line with the dollar spent in the later part of 2020, we could see a 76.4% increase of wealth invested in luxury real estate by the end of 2021 compared with 2019. Furthermore, high end real estate doesn’t always play by the rules of other sectors in the market. The wealth of those purchasing luxury properties can, to an extent, protect from factors that may otherwise influence homeowners with average priced properties within the community, insulating them and their buying and selling decisions.
When We Think About the Future
New buyers moving to the area who have often been accustomed to higher priced properties or those which offered fewer amenities for the same investment elsewhere are propelling second-tier markets throughout the country like the Triangle. With wealth growing and the cost of capital remaining low in recent years, circumstances are primed to positively impact the higher end housing market in the coming years. We may be at a tipping point, which could transition the area from one known to have affordable housing to a luxury real estate market.
As the Triangle area grows, Bryson Powell, Development Manager at Beacon Street, notes that he doesn’t see pricing going anywhere but up. “It’s simply supply and demand. It’s developers and builders working to create new opportunities where people want to live. The appreciation of desirable neighborhoods and locations will no doubt continue in places like downtown Raleigh and Durham,” where their upcoming projects will include The George, and recently announced, Caswell Heights and Budleigh East. Powell contends, “Raleigh is catching up with other cities, and from a pricing standpoint, will start looking like them as well – but we still remain a great value versus the alternative with as good if not a better lifestyle.”
For Beacon Street, it’s all about inspiring connections, Wiley explains, “We want to create places enjoyed by those that live in them, around them, and the city as a whole…where homeowners and neighbors thrive through connections they make with their community and enjoy life right outside their front door. We’re doubling down and reinvesting in what already makes these communities so great – the people and the streets.” It is in this, that there is not just a symbiotic relationship between wealth and real estate as we have examined but also one that exists when an already great place breeds great growth. For while real estate and the luxury market has had a record two years, the Triangle area is prime to continue its upward trend. In unpacking the drivers influencing our market, it is evident that the actions of community and business leaders, visionaries and neighbors listening, learning and adapting – who now and in the past have invested here – which continues to yield tremendous benefit to those living in the Triangle.
By Erica Jevons Sizemore
Broker, Realtor, and Certified Luxury Home Marketing Specialist (CLHMS)
Director of Luxury, Keller Williams Raleigh
Erica’s background in finance and marketing is matched with a personal passion for an unparalleled experience, love of home design and inability to sit still – always brainstorming how to better position her gregarious clients real estate investments to support their lifestyle and financial ambitions. Erica returned to residential real estate after 12 years in wealth management at Morgan Stanley. With a love of North Carolina and all things Raleigh, she has been an active volunteer and committee chairperson at many of our local community standouts, among them the North Carolina Symphony, Carolina Ballet, and Raleigh Chamber, and House of Hope NC.