Although luxury homes haven’t necessarily become any more luxurious this year, home prices on those properties grew an average 8.7%, selling for a record $1,225,000 in the first quarter, according to a new Redfin report. However, prices of non-luxury homes rose at roughly half the pace, but also reached a record high in the first quarter. Those homes were up 4.6% to a median of $345,000.
What defines a luxury home? Redfin has a simple definition, stating luxury homes are in the top 5% of their respective metro area based on market value, identifying non-luxury homes as those estimated to be in the 35th-65th percentile based on market value.
The reason luxury home prices are rising more so than non-luxury, Redfin states, is due to the fact demand for high-end homes has held up better than demand for middle-of-the-road homes. Redfin found that sales of luxury homes are on the upswing, because pesky little factors like mortgage rates have less of an effect on buyers with a luxurious budget. They just need to pull out a an extra wad of cash from their wallets, since the share of luxury homes bought in all-cash is sitting at record highs as well.
New listings of luxury homes are soaring—but not enough to curb the price growth that comes with rising demand; the total supply of luxury homes is still far below pre-pandemic levels.
“People with the means to buy high-end homes are jumping in now because they feel confident prices will continue to rise,” said David Palmer, a Redfin Premier agent in the Seattle metro, where the median-priced luxury home sells for $2.7 million. “They’re ready to buy with more optimism and less apprehension. It’s a similar sentiment on the selling side: Prices continue to increase for high-end homes, so homeowners feel it’s a good time to cash in on their equity. Even though mortgage rates remain elevated and demand isn’t as high as it was during the pandemic, many homebuyers and sellers feel the worst of the housing downturn is behind us.”
Sales of luxury homes rose 2.1% year over year in the first quarter. Luxury sales started posting year-over-year increases in January for the first time since August 2021, meanwhile sales of non-luxury homes decreased 4.2% year-over-year. Non-luxury sales haven’t posted an increase since the end of 2021.
Nearly half (46.8%) of luxury homes bought during the three months ending February 29 were purchased in cash. That’s the highest share in at least a decade and up from 44.1% a year earlier.
The total number of luxury homes for sale rose 12.6% from a year earlier in the first quarter, the biggest increase on record. That’s compared with a 2.9% decline in non-luxury inventory.
New listings of luxury homes soared 18.5% from a year earlier in the first quarter, the second consecutive quarter of double-digit increases. That’s roughly seven times more than the 2.7% increase for non-luxury homes.
Supply of luxury homes is shooting up for several reasons, one being that the mortgage-rate lock-in effect has a lesser impact on luxury homeowners because they’re more apt to buy their next home in cash or be in a financial position to take on a higher rate. The second reason is owners of luxury homes, many of whom have a lot of equity, are putting their houses on the market to cash in while prices are at record highs. Three, luxury supply had a lot of room to grow, as it was sitting at low levels during the first quarter of 2023.
While luxury inventory is on the rise, total supply and new listings are below typical pre-pandemic first-quarter levels. Relatively low inventory is one reason luxury prices are increasing.
