The State of Arizona's Luxury Market

Luxury Trails Overall Market, But 2010-2011 Looks to Be Stable & Improving

By Deems Dickinson, CRB

Arizona REALTOR® Magazine - April 2010

When you mention luxury homes in Arizona, most people think of Paradise Valley. However, from Flagstaff to Tucson, Pinetop to Phoenix and points in between, the luxury market in Arizona is vast and wide-ranging in its array of homes and amenities. The luxury home market is as diverse as the Arizona landscape itself.

Luxury Defined

Webster’s Dictionary defines luxury as “…a condition of abundance or great ease and comfort; a sumptuous environment; or, something adding to pleasure or comfort but not absolutely necessary.” Historically, location and price point have been determining factors in defining luxury properties. To most consumers, the value associated with a price tag over $1,000,000 or the community and development surrounding the property creates the ‘luxury.’ However, price and location aren’t enough; amenities count, too.

What are the amenities that add value to a luxury property? Views, acreage, golf, privacy, gated communities, quality of craftsmanship, design innovations and technology, outdoor living spaces, historical significance and architectural design all contribute to creating value in real estate. Whether it’s views of the Catalina Mountains in Tucson or the privacy of a wooded lot in northern Arizona, properties don’t have to be branded ‘estates’ to carry the luxury moniker. Arizona also has the advantage of adding ranches to its amenities list, whether it is simply a southwestern estate or a property with equestrian facilities.

Arizona is unique in its ability to incorporate outdoor living in the design of a home. To consumers in our mountain communities, their buying decision could be “all about the deck.” Coincidentally, desert dwellers look for opportunities to bring the indoors outside with retracting doors and expansive covered patios.

Luxury has taken a recent twist in Arizona with the ‘high rise’ condominium and loft markets. In downtown Scottsdale and Phoenix, new projects have created an urban lifestyle comparable to other metropolitan environments. The amenities of these ‘luxury’ properties include concierge services and proximity to shopping and dining. It’s location again, and a new experience in urban living for Arizona!

State of the Market

As real estate practitioners, we have all experienced the pain and challenges of the Arizona real estate market over the past 36 months, most notably in the market correction and price adjustments. Most economists and forecasters believe we have turned the corner and are in the recovery stages. They also believe that it will be a long recovery. As economist Elliott Pollack stated in a February 2010 presentation titled ‘A Rocky Hill to Climb,’ “2010 will be better than 2009; 2011 will be better that 2010; and, it will be 2012 or 2013 before the state is growing rapidly again.” It sounds simplistic, but the reality is that our recovery will require an increase in net migration, a decrease in unemployment and a rebound of consumer confidence. We can expect that short sales and foreclosures resulting in bank-owned sales will be the driving forces in our recovery.

The luxury market has not escaped this correction unscathed. In fact, this market segment has followed the overall trends and, like its commercial cousin, is experiencing sputtering attempts to correct itself. Foreclosures and short sales dot the luxury market landscape and continue to impact the declining values across the upper price ranges. In 2009, short sales and bank-owned sales over $1,000,000 were 27% of the total reported unit sales through ARMLS, compared to 1% reported in 2007.

A review of current inventory and average sales price is helpful in determining the state of the luxury market. It is important to acknowledge that the ARMLS statistics for the greater Phoenix market only give trends when applied to other markets across the state.

In February 2010, ARMLS statistics revealed that the month’s supply of homes or inventory between $1,000,000 and $2,999,999 was in the range of 23.3 to 26.9 months. Over $3,000,000, the supply jumps to 54 months. Comparing this supply with February 2009 and 2008, the $1,000,000 to $2,999,999 range was 35.4 to 68.8 months and 31 to 82.4 months respectively. Over $3,000,000, the month’s supply in February 2009 was 95.7 and in 2008, 68.1. The month’s supply for luxury properties has been historically higher, but a significant drop this past year signals an improving market.

In 2009, ARMLS reported unit sales of all types of properties at 91,652, compared with 58,902 in 2008. Meanwhile, unit sales of properties over $1,000,000 were still receding. There were 872 units reported sold compared to 1,010 in 2008 and 1,741 in 2007. This is further evidence that the luxury market is trailing the overall market. For homes priced between $1,000,000 to $1,999,999, the average price per square foot toppled below $300 in 2009. Likewise the $2,000,000 and $3,000,000 price ranges also experienced declines. As a result, in many of the luxury markets, the buyer’s decision to purchase has been postponed, and the sellers continue to wait for the recovery.

New Normal

What is the future of the luxury market? In the short term, the luxury market we are experiencing today is the new normal. 2010 and 2011 look to be stable and improving; however, we will most likely see continued pressure on pricing in the short term. As with all Arizona real estate, the long term forecast is bright. Compared to other markets in the country, from California to Colorado and Florida, Arizona is still a value proposition for real estate. Look at our market factors, mild weather (Flagstaff residents might argue this point from their snowy vantage point this winter), comparably low property taxes, lack of natural disasters (it’s a dry heat) and potential for growth.

Remember, luxury is in the eye of the beholder.

As President | Designated Broker for Russ Lyon | Sotheby's International Realty, Deems Dickinson strives for high ethics and professionalism in the business. He expects his sales associates to work with integrity to provide the best service possible to their clients. His commitment to these standards includes serving as chairperson of the Professional Standards Committee for the Arizona Association of REALTORS®. With over 30 years of experience in sales and management, Deems has witnessed firsthand the growth of Arizona. Source information was gathered through the Arizona Regional Multiple Listing Service and The Cromford Report.