BUNGALUX

To say that the luxury real estate market rebounded last year is like saying the Lakers are struggling a bit.

Sure, both are true, but both greatly understate what's really going on. We'll leave the Lakers' problems to the folks at ESPN, but since we're obsessed with luxury real estate around these parts we thought we'd delve into that market a bit deeper.

Here's guest contributor JARED DIAMOND to talk our favorite topic: Luxury real estate.

Luxury Housing Throws Up Some Surprises

In 2012, the housing market in the United States started to come out of the doldrums. It is still a long way from the highs it saw in 2006, but the luxury market – high-end homes from New York City to Los Angeles to the Hamptons - has stayed afloat even in difficult times. Buyers of luxury properties are sometimes even willing to pay 20 percent over the market rate to keep bidding wars at bay. New homes in this category account for about 18 percent of the market.

America Wins by Default

There are some driving factors which have led to this trend with the chief one being the increasing popularity of luxury real estate as a ‘safe haven’. INTERNATIONAL BUYERS, especially those hailing from the European Union, are seeing investments in the U.S. as a safe bet given the political and economic turmoil in their part of the world. Though the U.S. housing market has not been at the top of its game over the past few years, these investors see it as a quality or sound option instead of putting their money in bonds which will give lower returns. Erika West, real estate credit consultant with rent to own homes listing service HOMESTARSEARCH, says, “The U.S. is being perceived as a safe environment for investment and this is attracting many foreign buyers.”

Yet another reason for the popularity of luxury real estate is the FINANCIAL SITUATION OF THE BUYERS involved. These people do not have to worry about securing a mortgage or haggling with credit institutions. Frequently, transactions are carried out with cash and deals are closed instantly. “These buyers perceive that the prices have bottomed out and are unlikely to dip any further. They do not want to wait any longer to make their investment,” adds West.

Russian Capital is Fine Too

West further adds, “The weakening dollar has made it possible for international buyers to find great bargains in places like Miami Beach and San Francisco.” The number of international buyers has gone up by almost 25 percent this past year and the amount they spent is close to $80 billion. Russians top the list of foreign investors buying up luxury real estate and the appreciation of the ruble by more than 9 percent against the dollar in a year is also a contributing factor. New York and Los Angeles have also seen an influx of Russians over the past decade and more.

Peace and Quiet

The boom in the luxury housing market is not confined to the popular destinations and city centers. Smaller towns across the country are also witnessing this trend. The tiny villages of Sagaponack and Water Mill in Long Island, Hunts Point in Washington, as well as Fairbanks Ranch and Woodside in California, are examples of some small towns which have become lucrative to domestic and international buyers seeking luxurious homes or estates.

From One Country to Another

A strong luxury market has numerous implications including substantial impact on the construction industry. Since the average luxury home is at least thrice as the size of an ordinary home, it presents nearly three times the revenue potential of the latter. The fact that sizes of luxury homes were the biggest in 2012 seems to be an indicator of better times to come or that the rest of the world (besides New Zealand, Australia, South Korea, and a few other places) is just looking quite shabby.