Houses on Rivo Alto Island in Miami Beach, Florida, United States, on Wednesday, February. 1, 2023.
Eva Marie Ozcategi | bloomberg | Getty Images
The US housing market is being hit hard by rising mortgage rates, and luxury home sales are seeing the worst of it.
Luxury home sales fell 45% during the three months ended January 3. 31 compared with the same period a year earlier, according to real estate brokerage Redfin. Redfin defines luxury homes as those that are valued in the top 5% based on appraised market value. Non-luxury home sales fell about 38% over that period.
Miami, which saw an influx of affluent buyers who immigrated from the Northeast in the early days of the Covid pandemic, has seen sales drop nearly 69%. This was followed by the Nassau County-Suffolk area of Long Island, New York, home of the Hamptons — down nearly 63%. Some of California’s more expensive markets also saw sales drop significantly because they also experienced significant pandemic sales.
While not all luxury buyers use a mortgage, they are affected by the broader economy, and more specifically the stock market. Therefore, the fluctuations in the financial markets have a great impact on the luxury real estate market.
“The silver lining for luxury buyers still in the market is that there is little competition, and mega loans now often have lower mortgage rates than other types of loans, in part because there is less risk that high-end buyers will default on their mortgages,” he said. Chen Zhao, Redfin Economics Research Lead, said in a statement, “Wealthy home hunters are also frequently offered additional price discounts from their banks as an advantage for storing significant funds there.”
Competition is declining not only because of reduced demand. The supply is going up. Inventory is up 7% year-over-year, the largest increase since 2015.
However, supply also remains historically limited — not much higher than record lows in 2022. New listings are also down 22%, which suggests supply is higher because homes are sitting around longer.
Shortage of supply drove up the price of luxury homes. The average price increased by 9% compared to the same period in the previous year to $1.09 million. Luxury prices hit an all-time high of 1.1 million in the spring of last year.