Editor's Note: Jared Diamond examines the hottest luxury property markets in the US, discussing the sector’s investment prospects with experts on the ground.

The prospects for the luxury real estate market are looking up in 2013, although they might not be as bright as they were a few years ago. The fact is, this is one segment in the housing market that has stayed pretty stable after the bubble burst.

The boom in luxury markets is being seen in regions that have one or more of these features in common: a thriving economy, some type of historical significance, good climatic conditions, and happening hot spots. Cities such as San Francisco, New York City, Los Angeles, Miami and Washington DC continue to be favorites with those seeking high-end properties.

The value of luxury homes in the final quarter of 2012 rose by 8.4 per cent year-on-year in San Francisco and 4.4 per cent in Los Angeles, according to First Republic’s Prestige Home Index. The average luxury home in San Francisco is now worth $2.73 million in the San Francisco Bay Area and $2.06 million in Los Angeles.

It’s in the address

Mansions in the Hamptons, mini-mansions in Connecticut and New Jersey, bungalows and modern glass designs in Pasadena located in Los Angeles County, bi-level single family homes in Presidio and Sea Cliff in the Bay Area, waterfront condos in soaring high rises in Miami, old classic homes on Capitol Hill and Georgetown in Washington DC, and new luxury homes in bedroom communities in Maryland and Virginia, are the most sought after addresses.

TJ Howett, a senior manager with HomeStarSearch, a national home listing service, notes that “in many of these locations there are quite a few rentals available as well. So, some prospective buyers choose to rent a place for a while to get the feel of the area before they start scouting for a property to purchase.” Rents can range from $28,000 a month for a 5,000 square foot apartment to $150,000 a month for an 11,500 square foot mansion with varying amenities.

The sky is the limit

There is no limit to what money can buy when it comes to luxury residences with the latest of amenities. Full-floor apartments as well as restored or modernized heritage homes with spectacular views of landmarks such as Central Park, Hollywood Hills, and the Pacific Ocean are amongst those most sought after. Perks include discreet side entrances, pet wash areas, billiard rooms, private saunas, koi ponds, and even gold-inlaid pools. 

According to Howett, there are a lot of people who want to upgrade. “Primarily they want a space that reflects their individual taste and style and are willing to pay for it,” he says. That the sky is the limit for billionaires was reinforced by what is perhaps the priciest purchase of 2012 - a penthouse in New York City that sold for $88 million.

International buyers

At the recently-held “Real Estate Connect” event, an annual gathering of top real estate professionals held in New York City, the spotlight was on global trends, international buyers, and the marketing of luxury properties using the newest in technology.

The latest trend among international buyers has been found to be properties with potential for long-term investment, according to speakers at the conference. The clients who once sought only holiday homes or apartments in the city for an annual shopping visit or vacation are now leaning towards properties such as a luxurious suburban house with some land, sufficient infrastructure, and good schools. Howett adds: “Customers from Russia and China are showing a great deal of interest in such properties. This makes it important to market the higher-end properties internationally in an appropriate manner.” Indeed, a report last year showed that sales of US homes to buyers from China and Hong Kong had soared over a 12-month period. The international buyers are now gradually seeing increasing competition from domestic buyers.

The bright spots in the US luxury property also represent a big boost for firms all through the supply chain, not least building materials suppliers. The housing market has always been an important barometer of economic health, and improvements in the luxury housing segment are cause for the economy to cheer.