For those looking to invest in high-end real estate in the U.S. but are hesitant to part with their cash in the face of stock market volatility, the rewritten federal tax code enacted last year and a widely cooling luxury real estate market, now is the time to turn to the second-tier cities of Las Vegas, Nashville, and Arlington, Virginia.
These smaller cities, commonly referred to as “secondary cities,” are proving to be veritable pockets of prime real estate opportunity, as luxury and ultra-luxury homes are selling for higher prices, in greater numbers and in quicker time.
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There are “great buys and there's a great opportunity,” in the three cities, according to Stephanie Anton, president of Luxury Portfolio International.
“Two years ago would have been a better time [to invest]. But waiting two more years would be a mistake,” she told Mansion Global.
The overall luxury market is witnessing the opposite of the trio, with falling asking prices and declining sales becoming a hallmark of the sector.
Asking prices for high-end homes dropped 3.6% in the year to January across the 88 markets nationwide that realtor.com tracks for their luxury market report.
(Mansion Global is owned by Dow Jones. Both Dow Jones and realtor.com are owned by News Corp.)
The total number of million-dollar homes sold across those 88 markets dropped 3.3% in the same time, the slowest pace of luxury sales growth since July 2016.
However, Las Vegas, Nashville and Arlington are bucking the wider trend due to favorable tax conditions and a healthy economy, including incoming tech giants, according to experts.
“In the cities that are standing out, the local governments have been proactive in planting seeds to attract new business and industry,” said Jonathan Miller, chief executive of real estate appraisal firm Miller Samuel. “Job creation and wage growth are the core drivers of a housing market, and it doesn't happen overnight. It's a combination of planting the seed of industry and expansion, combined with the same thing for housing supply.”
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Also helping to power the markets are buyers looking to have good quality of life, according to Ms. Anton, and with remote work and flexible professional settings so commonplace, “people can live where they love,” she added.
Smaller cities are “catching on” and “growing up,” Ms. Anton said. “I think they’ll continue growing. The outlook is better than in the more mature markets, where people are leaving.”
Las Vegas
In Las Vegas, the median asking price for a luxury home—defined as the top 5% of the market—was $1.15 million in March, an 8% increase year over year, with homes selling 21 days, or 18%, faster, according to data provided to Mansion Global by realtor.com.
But while the luxury market is performing well, the ultra-luxury sector in Las Vegas is booming.
As of January, the benchmark for ultra luxury—defined as the top 1% of the market—stood at $1.56 million, an increase of 44.8% year over year, the data show.
But in March, the median listing price for an ultra-luxury home in the city was $4 million, up 23.1% year over year, with homes selling 31 days, or 21.2%, faster than the previous year.
Overall, million-dollar sales in Las Vegas were up 3.5% in the fourth quarter 2018 compared to the same time in 2017.
Las Vegas is a city “really benefiting from overflow,” Javier Vivas, director of economic research at realtor.com, told Mansion Global.
Increased migration from the nearby, high tax and wealthy Bay Area is “driving the interest,” in the luxury market, he said.
Nevada has no income tax and some of the lowest property tax rates in the U.S.
“A lot of buyers from other [high-tax areas] are saving tens, if not hundreds of thousands of dollars,” Mr. Vivas said.
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Coldwell Banker Premier Realty’s development division, known as Developer Services, is so confident about future sales demand in Las Vegas, according toDiane Varney, a realtor with the firm, that they’re building high-end homes without having buyers secured, “knowing that there will be a buyer commitment on that property” before construction is completed, Ms. Varney said.
“That's probably the best example about what the experts are predicting for the market,” she said. “This is really proving there's confidence in the future.”
“Even if you need a plan B or if you’re an investor, you can rent it. The rental market has just steadily climbed and climbed,” Ms. Varney said. Rental values in Las Vegas were up 6.4% year on year in February, according to Zillow.
Arlington, Virginia
In March, the median asking price for luxury homes in Arlington was $2.35 million, up 17.9% year over year, with homes selling 29.4%, or 42 days, faster than in March 2018, according to realtor.com’s data.
At the very top end of the market, the median listing price for ultra-luxury homes was $3.3 million, an increase of 13.8% year over year, with homes selling 41.5% faster than at the same time last year.
Overall, million-dollar sales in Arlington were up 29.5% in the fourth quarter 2018 compared to the same three months in 2017.
Arlington’s amenities are big drivers of its popularity, according to real estate agent Jordan Stuart of Keller Williams Capital Properties.
“The public schools are excellent, the proximity to [Washington, D.C.] for commuters and federal workers is very close,” and “it has Metro accessibility. It’s not car dependant. Arlington gives commuters options,” Mr. Stuart said.
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But Arlington is also feeling the Amazon effect. The online retail giant selected it as the location for its second headquarters and is set to invest more than $2.5 billion and create more than 25,000 jobs by 2030.
“Since the announcement—though not many have moved yet—we have seen the positive impact in both luxury sales and prices,” Mr. Vivas said. “And that should continue.”
“It’s not just Amazon. There's a plan to really grow the economy,” Mr. Vivas continued. “They’ll bring in other companies. That's what creates the momentum. We know any time you have strong job creating, paying six figures, there’s strong entry level luxury demand.”
A week before Amazon’s official announcement in November, anonymous sources broke the firm’s plans to The Wall Street Journal. In the first 11 days of November, searches on listing site Redfin for homes in Crystal City—the Arlington neighborhood where HQ2 will be—jumped 210% compared to the same time the year prior, Mansion Global previously reported.
“I don’t see any reason [for buyers] to sit and wait and expect the market to go down,” Mr. Stuart said.
“Things that were $1 million last year are $1.1 million now, it’s an upward market that’s getting more and more competitive,” he said.
Nashville
In Nashville, million-dollar sales were up 43% in the fourth quarter of 2018 compared to the same time in 2017.
The median asking price for luxury homes was $1.35 million, up 10.2% annually in March, with homes selling 16 days faster than they did at the same time in 2018, according to the data.
The median listing price for ultra-luxury homes was $2.75 million, up 5.8% year over year, with homes selling 25 days faster than the previous year.
Overall, the biggest driver for the market has been Nashville’s focus on bringing in large corporations, according to Erin Krueger, head of the Erin Krueger Team at Compass.
“You are seeing stable growth thanks to the Fortune 100 companies moving their talent into the Nashville market,” Ms. Krueger said.
Eventbrite, Lyft, Postmates and Google have all established a presence in the city since 2014.
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In November, Amazon became the latest addition, announcing that it had selected Nashville for a new $230 million Center of Excellence for its Operations business, set to bring in 5,000 new jobs to the city, according to the online retail giant. “And they'll need homes,” Ms. Krueger said.
As in Las Vegas, the migration numbers to Nashville are high, with over 100 people a day moving to the city, Ms. Krueger said.
The city attracts both west coast and east coast clientele, plus buyers from U.S. states like Arizona and Texas, according to Mr. Vivas. And movers are often lured by the favorable tax conditions: Tennessee has no income tax, and low property tax rates.
The migration is a “major driver in prices,” he said. “We have the outsiders really coming in with money and that gives sellers the opportunity to leverage the power of another market.”
As Nashville grows, “so will demand,” Ms. Krueger said. “Right now the market is garnering great returns for homeowners. But as demand increases, so will sales prices, making Nashville a city to invest in.”