Jan. Luxury Purchases Down 45% Year-to-Year
Financially astute wealthy buyers don’t like the uncertainty of today’s market, so some have taken a wait-and-see attitude with home buying.
SEATTLE – Sales of luxury U.S. homes declined a record 44.6% year over year during the three months ending Jan. 31, 2023, according to Redfin. That drop outpaces a record 37.5% drop in sales of non-luxury homes, according to data collection that began in 2012.
In the face of inflation and the Federal Reserve raising interest rates, the U.S. housing market has cooled significantly over the last year due to rising mortgage rates, persistently high home prices and a shaky economy. The result: Many wealthy Americans choose to invest in assets due to the uncertainty of future real estate returns.
Redfin defines luxury homes as those in the top 5% based on the area’s estimated market value.
“Uncertainty is the main factor driving the luxury-market slowdown in Los Angeles,” says Alin Glogovicean, a local Redfin Premier real estate agent. “If you’re investing millions in a property, you want to make sure it will hold its value. Most luxury buyers and sellers are thinking, ‘Let’s just wait and see what happens to the market. When it stabilizes, we’ll be ready to go.’ Everyone is kind of at a standstill.”
Miami led the drop in high-end home sales:
- Miami: Down 68.7%
- Nassau County-Suffolk County, New York: Down 62.6%)
- Riverside, Calif. Down 59.8%
- Anaheim, Calif.: Down 59.3%
- San Jose, Calif. Down 59%
These markets likely saw high-end buyers back off because they were already among the least affordable in the nation, and rising rates added fuel to the fire. However, those metros also saw an outsized surge in luxury sales during the pandemic, so that decline probably isn’t a long-term change but a return to sustainable levels.
“The silver lining for the luxury buyers who are still in the market is that competition is sparse and jumbo loans now often have lower mortgage rates than other loan types, in part because there’s less risk that high-end buyers will default on their mortgages,” says Redfin Economics Research Lead Chen Zhao. “Wealthy house hunters are also frequently offered additional rate discounts from their banks as a perk for storing substantial funds there.”
A limited inventory of luxury homes
The number of for-sale luxury homes rose 7.1% year-to-year, the biggest jump since 2015 – but that increase can be misleading. It’s largely due to the fact that supply hit rock bottom roughly a year earlier, and supply is also piling up because so few people are buying homes.
As a result, supply remains tight by historical standards. The number of luxury homes for sale wasn’t much higher than a record low hit about a year ago.
Supply remains near historic lows, in part, because fewer people are putting their homes on the market. New listings of luxury homes fell 6.6% year over year as new listings of non-luxury homes slumped 22.5%.
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