A report by Redfin, the real estate company, points out that US luxury home sales declined a record 44.6% year-over-yearthe second lowest level on record for the three months ending January 31, 2023. The figure tops the record 37.5% drop in non-luxury home sales.
The housing market has cooled over the last year due to high mortgage rates, persistently high house prices, constant inflation and a shaky economy.
But the real estate company emphasizes that the luxury market has fallen relatively quickly because:
– People tend to buy less expensive goods in times of economic uncertainty.
– The luxury home sales grew faster than non-luxury home sales during the pandemic, so they now have more room to fall.
– A Higher Mortgage Rate Makes Home Buying More Expensive for Almost Everyonebut it can add tens of thousands of dollars to the price of a luxury home, surprising high-end buyers.
– Wealthy homebuyers often they have a lot of money in the stock marketwhich got off to a rocky start in 2023 after its worst year since 2008.
– Many wealthy Americans are choosing investing in assets other than real estate because high mortgage rates and declining home prices have clouded potential real estate returns.
“Uncertainty is the main factor driving the slowdown in the luxury market in Los Angeles,” said Alin Glogovicean, real estate agent at Redfin Premier. “If you’re investing millions in a property, you want to make sure it will hold its value. Most luxury buyers and sellers think: ‘We will wait and see what happens with the market‘. When it stabilizes, we’ll be ready to go. Everyone is a bit stuck.”
The report notes that the decline in high-end home sales was led by high-priced markets on the East Coast and California during the three months ending January 31.
The biggest drops occurred in:
– Miami, -68.7% YoY
– Nassau County –Suffolk County, -62.6%
–Riverside, -59.8%
–Anaheim, -59.3%
– San Jose, -59%
“The silver lining for luxury buyers who are still in the market is that competition is thin and jumbo loans now tend to have lower mortgage rates than other types of loans, in part because there is less risk of high-end buyers defaulting on their mortgagessaid Chen Zhao, Redfin’s economic research leader. “Wealthy house hunters are also frequently offered additional rate discounts from their banks as a benefit for storing substantial funds there.”
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