Is the Surge in Luxury Home Activity Already Over?

The end of 2012 saw a massive surge in luxury home sales but was it really just a part of the real estate recovery or is the rush already over?

The National Association of Realtors reports a 51% spike in homes sales for properties over $1 million, with areas like Manhattan seeing a an outrageous 44% jump in $10 million property sales, much to the delight of real estate agents and investors.

However, the word on the street from the real estate investors and agents involved in these transactions is that most of the rush in luxury home activity was due to fears of the fiscal cliff and the new higher tax rates being implemented this month.

From capital gains to the Medicare tax on investment income and higher tax rates for high income earners the difference in taxes on a $1 million profit was $88,000 less last year than in 2013 according to CNN Money.

This had many sellers eager to slash listing prices, including one property in New York which had its price tag reduced by $175,000 before the end of the year. Others of course pulled their listings off the market entirely if they couldn’t close in time and are waiting to restructure before re-listing again.

So will this all lead to a slump in 2013, at least in the luxury home market?

Less inventory and higher taxes should be balanced by rising equity and as higher end income earners adjust they will be more interested in selling a home again. Plus the main real estate tax breaks were extended through 2013 making it a great time to buy and sell but without much time to procrastinate.

Mortgage rates remain low too but perhaps the most significant driver of luxury home sales in 2013 won’t be related to logic at all but the race for acquiring the most magnificent trophy properties.