Luxury home sales fell 17.8% from last year during the three months ended April 30, 2022, representing the largest drop since the onset of the COVID-19 pandemic, according to an analysis by Redfin, the technology-powered real estate brokerage. Meanwhile, sales of non-luxury homes dropped 5.4%, according to Redfin’s analysis.
Luxury homes are defined as the most expensive 5% of homes in each metro area.
Soaring interest rates, a tepid stock market, rising inflation, and economic uncertainty have put a damper on demand in the luxury market, Redfin said. For luxury buyers, a higher mortgage rate can mean a monthly mortgage bill that’s thousands of dollars more expensive. The cooldown also shows that the market for high-end homes is coming back down to earth following an 80% surge in sales a year ago.
Luxury home sales began to slow in the spring and summer of 2021 due to an extreme shortage of homes for sale. Although the inventory crunch shows signs of easing, the shortage of luxury homes on the market is still contributing to the drop in sales.
Elena Fleck, a Redfin real estate agent in West Palm Beach, Fla., says the pool of people qualified to buy luxury properties is shrinking due to the falling stock market and rising interest rates. However, she said the market is becoming more balanced and competition is easing up. Yet, that doesn’t help the scores of Americans who have been priced out of the market.
“I had one seller in Delray who went under contract on their home for over $2 million in March, right in the middle of an interest-rate hike,” Fleck said. “The buyers backed out because they realized their mortgage payment would rise by more than $3,000 per month with the higher interest rate. They could no longer afford the house comfortably.”
Rising interest rates have put a damper on the entire housing market in recent weeks. During the week ending June 9, the average 30-year fixed mortgage rate was 5.23%, down slightly from a 2022 peak of 5.3% but still significantly higher than 3.11% at the end of last year. Mortgage rates for jumbo loans, the type most luxury borrowers use, have been surging as well. The rate on a 30-year jumbo loan was 5.06% as of June 8, up from 3.23% at the end of 2021.
The median sale price for luxury homes shot up 19.8% year-over-year to $1.15 million during the three months ending on April 30, roughly the same growth rate as non-luxury homes. While that’s still above pre-pandemic levels of less than 10%, it’s down from a peak of 27.5% in the spring of 2021.
As the inventory crunch for luxury homes eases the drop in sales, more homes become available for purchase. The supply for luxury homes for sale fell 12.4% year-over-year during the three month period ending on April 30. In comparison, there was a record decline of 24.6% during the summer of 2021, when there was still intense demand for high-end homes. The supply of non-luxury homes fell 8.4% during the three months ending April 30.
The increase in new luxury listings is one reason the overall luxury supply isn’t falling as sharply as it did last year. New listings for luxury homes rose 1.1% year-over-year for the three months ending on April 30, marking the first increase since the summer of 2021.
Metro-Level Highlights:
- Home sales: Luxury home sales fell in all but one of the top 50 metros. The biggest decline was in Nassau County, N.Y. (-45.3% YoY), followed by Oakland, Calif. (-35.1%), Dallas (-33.8%), Austin, Texas (-33%) and West Palm Beach, Fla. (-32.8%). The only increase was in New York (+30%).
- Prices: The median sale price of luxury homes rose in all of the top 50 metros. It was up the most in Tampa, Fla. (+33% YoY), followed by San Diego (+31.4%), Jacksonville, Fla. (+31.2%), Nashville (+30.3%) and Fort Worth, Texas (+29.4%).
- New listings: New listings of luxury homes increased in 16 of the top 50 metros. The biggest gain was in Warren, Mich. (+32.2% YoY), followed by New York (+31.1%), San Antonio (+22.8%), Detroit (+22.3%) and Nashville (+18.4%). The biggest declines were in Oakland (-28.4%), Los Angeles (-27.6%), Anaheim, Calif. (-25.2%), San Francisco (-24.9%) and San Jose, Calif. (-23.6%).
- Supply: Active listings of luxury homes dropped in all but five of the top 50 metros. The biggest declines were in Anaheim (-38.7% YoY), Los Angeles (-36.1%), Miami (-33.7%), San Jose (-32%) and Oakland (-31.3%). The metros that saw increases were San Antonio (+22.4%), Warren, Mich., (+15.1%), Columbus, Ohio (+7.3%), Detroit (+4.7%) and Nashville (+0.1%).
