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It’s a strange contrast: while homes are becoming increasingly unaffordable for the average person, the luxury real estate market is booming, even though a luxury property in the U.S. now costs more than ever.
Take California, which boasts the most expensive housing markets in the country. According to data from a California Community Poll, four in 10 Californians are considering an out-of-state move due to the high cost of living. Meanwhile, one of the most expensive home sales just took place in Los Angeles at $38.5M, according to Redfin.
Somewhere in between those struggling to make ends meet and the uber-wealthy, a new segment of real estate buyers is emerging. They’re young. They earn between $100,000 and $250,000. They may also be burdened by big expenses such as student loans and high living costs.
They’re called HENRYs (High Earners, Not Rich Yet). They are mostly millennials, and they’re in the market for luxury properties. A recent survey launched with Pollfish on July 2 of 1,000 people aged 18-54, who make at least $100,000 and have either bought a luxury property in the last 18 months or plan to buy one within the next two years, shed light on luxury real estate purchases and uncovered some of their unique preferences. The survey explores HENRYs’ engagement with luxury real estate by asking if they have purchased or plan to purchase a property valued at $1 million or more within specific timeframes, examining their motivations, investment priorities, financial strategies, and concerns related to the luxury real estate market. It also investigates the types of luxury properties they are interested in and the factors influencing their perceptions of the market. Here’s what you need to know.
53% of Californian HENRYs want a penthouse
HENRYs are uniquely positioned because they make six figures but haven’t yet built wealth. They make a good amount of money and are often child-free, but they don’t necessarily feel financially secure – blame it on student debt and the price tag that comes with living in the city.
Some HENRYs may enjoy a more comfortable lifestyle and spend money on travel and nice places. Others are focused on saving and building a nest egg. Some enjoy luxuries but are also conscientious about the future. Enter real estate. According to the survey, among respondents aged 25-to-44-years-old—millennials in 2024 are between the ages of 27 and 42—50% of HENRYs that live in California are interested in purchasing an urban penthouse.
Surprisingly, this is the most desired type of property for Californian HENRYs, followed by a suburban mansion (47%), a coastal property (36%), and a rural estate (36%). This eye-opening insight highlights this demographic’s potential impact in shaping luxury real estate trends.
If Californian HENRYs are any indication, fancy coastal homes may become less popular and high-end urban properties more appealing – even in areas where the coast is traditionally coveted. Especially considering that 58% of them have bought a luxury property in the last 18 months, and 42% plan to buy one within the next two years.
Investment potential is the key motivation behind this trend
Wondering what’s driving younger people’s interest in luxury properties in the first place? They don’t necessarily want to live in them – they see them as high-value investments. 48% of HENRYs in California cited investment potential as their primary motivation for purchasing luxury real estate, including urban penthouses (vs. 27% who said it was for personal use).
Young Californians are even prioritizing luxury real estate over other types of investments, with 54% of them reporting that it’s a top priority compared to other forms of investing. This indicates that they see significant value and potential returns in luxury properties, specifically urban penthouses.
Opting for penthouses in the city rather than traditional coastal homes is a strategic move. HENRYs are city dwellers who recognize the appreciation potential in urban centers. Additionally, they may have an eye for rental income opportunities, as they understand the lifestyle benefits of urban living first-hand – think modern amenities, convenience, and proximity to social, cultural, and business hubs.
The downsides of coastal living may turn younger buyers off
Californian HENRYs may be all too aware of the pitfalls of coastal living. While it sounds idyllic in theory, it can involve big expenses due to harsh weather conditions.
Beach homes are priced roughly 29% higher than landlocked homes in the same area. That ocean view makes the price tag seem justifiable, but there are trade-offs. You may come home to mounds of sand piled up on your driveway, or, even worse, experience a natural disaster such as flooding.
Insurers are aware of the risks that come with living by the water, which is reflected in both their premiums and coverage options. “The single biggest risk to beachfront property, at least if you’re on the ocean, is insurance: You’ll be vulnerable to flooding, hurricanes, coastal erosion, and sea level rise, all of which are getting harder and harder to insure,” Martin Orefice, the CEO of Rent to Own Atlanta, told Realtor.
As for the sound of the crashing waves and the fresh smell of salty ocean air, they are unfortunately synonymous with salt-driven erosion. Even if you’re affluent, dealing with constant repairs is a pain.
Urban penthouses: a strategic choice
So, how are HENRYs in one of the most expensive states in the country financing these penthouses? Most of them (46%) are planning to use a combination of cash and mortgage.
A small number of them (6%) are considering jumbo loans, which are large mortgages that exceed conforming loan limits set by the Federal Housing Finance Agency (FHFA). To give you an idea, in 2024, the limit for one-unit properties was set at $766,550.
Jumbo mortgage loans cannot be backed by government-sponsored enterprises like Fannie Mae or Freddie Mac, and they tend to come with more stringent requirements. Financial readiness and strategic planning are key when purchasing a luxury property with a hefty price tag, and younger buyers are certainly considering different options.
Here’s another interesting fun fact: Nearly 23% of Californian HENRYs are even considering buying in cash, which speaks to their ability to save their income (or perhaps to rely on familial support).
Bottom line
As HENRYs in The Golden State take their attention away from coastal communities, they’re starting to enjoy the benefits of city life. It’s a completely different lifestyle, and it’s also one informing their perception of investment potential.
Thanks to strategic financial planning, they are driving new trends in the luxury real estate market and will possibly turn urban penthouses into the new symbol of luxury for generations after them.
Methodology: A survey conducted on July 3, 2024, via Pollfish, targeted 1,000 U.S. respondents aged 18-54 with incomes of $100,000 or more. It focused on those who had recently purchased or planned to buy a luxury home valued at $1 million or more. The survey emphasized the 25-44 age range, reflecting millennial HENRYs, and results were weighted to align with U.S. census data on age and gender.
Disclaimer: Article content is intended for information only. It may not reflect the publisher nor employees’ views. Consult a mortgage professional before making financial decisions. Publishers or platforms may be compensated for access to third party websites.
