Four months into 2021, there is notable optimism in the air. The rapid progress of the US vaccination program has boosted the chances of an earlier and stronger economic recovery. What might this mean for the US luxury real estate market? The answer depends very much upon whom you ask and where.

Especially in suburban areas, conditions are tight. Limited supply and fierce bidding are driving up asking and transaction prices. Open house sales are attracting long lines, multiple bids above list price, and all-cash offers. There has also been an increase in people purchasing without even viewing the properties. Having mortgage preapprovals or ready funds has seldom mattered more.

Meanwhile, a key group of potential sellers of US homes are not participating as we might have expected. Rather than downsizing, many baby boomers are choosing to stay put. One reason for this is likely the experience of living through the pandemic. Sheltering in place is typically much more agreeable in a larger property with generous outdoor space. There is also a striking trend towards home improvement among existing homeowners.

In major US cities, the picture typically looks rather different. Many luxury apartment owners have seen a reduction in the value of their homes. For obvious reasons, living in densely populated areas became much less appealing during the pandemic. And many of the most attractive features of urban life, such as restaurants and cultural venues, have been off limits.

That said, there are some encouraging signs in New York City. Sales of top-end apartments priced at $4 million and above are showing signs of an upswing in the form of new contracts signed. And about 42% of the sales in the most recent quarter were to first-time homebuyers. This suggests that the appetite for urban living could return even more strongly once the pandemic is finally defeated as these purchasers feel like they got good deals at the bottom of the market.

Despite pandemic-related disruptions to construction, many luxury urban developers currently have substantial inventories of unsold apartments. In response, some are offering units at discounts of 15%-25% to original list prices. For now, though, there is little sign that potential buyers feel pressure to commit quickly, unlike those purchasing in the suburbs. However, despite continued improvements in activity every month, it could take rather longer to see a full recovery in valuations to pre-crisis levels. Indeed, this could even take some years.

Still, there are some pockets of strength within the urban luxury sector. Metropolitan areas in Texas and Florida, for example, have seen an influx of people leaving markets such as New York City and California. These markets continue to see a lack of inventory and high demand like the suburbs.

For the overall US market, financial conditions remain supportive. With borrowing rates still low, mortgage demand – both for purchases and refinancing – is strong. However, while the banks are continuing to lend, they are also reducing overall risk. In general, they are granting lower loan-to-value mortgages and insisting on higher credit scores. Indeed, mortgage applicants’ average credit scores are at their highest in 18 years.

As we enter May, the spring home buying season is upon us once more. Typically, we would expect to see a flurry of listings. For now, though, there is little sign of this. So, will this year’s spring purchase season materialize? Or might we see a late bloomer that continues into the latter part of summer? At this point, it is hard to tell. However, the green shoots of recovery are clearly in evidence, particularly for suburban locations.