In the first quarter of 2021, luxury home sales increased 41.6% from the year prior, according to a Redfin report. By comparison, affordable home sales only increased 7% from the previous year and sales of middle-priced homes increased 5.9%, making luxury homes the fastest-growing segment of the housing market.
Redfin’s analysis divides residential properties into five tiers that increase in range of sale price -- luxury, expensive, mid-priced, affordable and most affordable. Typically, sales growth is similar across price tiers, but the COVID pandemic has only increased economic inequality in this area. Wealthy Americans, such as those migrating from coastal metro areas, are taking advantage of low mortgage rates to buy luxury homes in vacation-like destinations. Meanwhile, many lower to middle-income Americans are unemployed, don’t have the flexibility to move, and lack the means to become a homeowner.
The 49 most populated metropolitan areas all experienced a surge in luxury home sales in the first quarter of 2021. Miami was the most popular destination, where luxury-home sales skyrocketed 101.1% from a year earlier. The following most popular destinations for luxury home buying are all cities in California -- San Jose (92.3%), Oakland (82%), Sacramento (79.3%), and Las Vegas (72.7%).
Unlike mid-priced and affordable homes, there is no shortage of luxury homes, which allows prices to flourish. Mid-priced home sales decreased 19.8% from the previous year and affordable homes decreased 14.9%, yet luxury-tier homes only decreased 5.1% from the previous year. The shortage is much less severe and shopping for a home is less competitive for the top-tier buyers. In fact, new listings increased 15.8% in the first quarter of 2021 compared to last year. Meanwhile, the listings in other price tiers declined.
The hesitancy of low to middle-class Americans to put their homes on the market will only worsen the shortage, said Redfin Chief Economist Daryl Fairweather.
"Non-luxury homeowners have also taken advantage of mortgage forbearance during the pandemic, allowing them to hold onto their homes in the event of a default instead of putting them up for sale. This is another reason the housing shortage is more acute in the non-luxury market," she explained.
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