(TheNicheReport) -- The luxury markets are supposed to be somewhat insulated from the constraints of economic recessions. In the United States, the demand for luxury goods and upscale real estate climbed during the most prosperous period of the housing bubble, then it fell back to normal levels in 2006. Luxury properties also tend to retain their values in greater proportion when compared to median housing. These conventions, however, are no longer holding up.
According to reports recently issued by real estate analytics firm RealtyTrac, the American luxury real estate market has undergone a major price reduction. Homes valued over $1 million have taken a 20 percent hit in 2012; for example, stately properties that were listed at $2.5 million last year are now selling for $2 million. This price slashing comes in the wake of reports of nationwide median home price increases, although it is important to note that economists are not convinced that the rise in median home prices can be sustained in the long-term.
An Active Luxury Market
Real estate agents are seeing the luxury price drops in a positive light. Sales of upscale homes are usually constant, by the sharp reductions in listing prices are definitely attracting more buyers. The steady nature of the deluxe real estate market may have prompted sellers to be resolute in their listings a year ago, but many real estate investors have turned their attention to other market segments, such as multifamily dwellings and apartment buildings that can be immediately put into service as rental properties.
Sales of luxury homes, which consist of properties listed at $1 million or more, have gone up by 18 percent since January. Sellers are taking notice and marking down their asking prices; in the case of opulent mansions, 30 percent reductions are not unheard of. The situation points to the awakening of a market that enjoyed some stability during the worst of the recession, and many luxury home sellers thought they could hold on and wait for the deal of a lifetime.
The luxury real estate market is largely regional; it is mostly concentrated in California, Florida, New York, and upscale communities along the coastal states. Falling prices in the South Florida communities of Miami, Fort Lauderdale and West Palm Beach are managing to attract wealthy buyers from Latin America, who are looking for a vacation home or an investment property. There is, however, one more reason for the sudden luxury real estate price cut and sell-off: by the well-to-do: the capital gains tax cuts championed by the Bush administration could soon expire.