Sales remain strong, but soaring interest rates, a shaky stock market, rising inflation and economic certainty have put a damper on demand.
SEATTLE – Luxury U.S. home sales fell 17.8% year-over-year in the first quarter of 2022 for the largest drop since the pandemic shook up the housing market. Sales of non-luxury homes also fell, but by notably less: 5.4%, according to an analysis by Redfin.
The analysis defines luxury homes as the most expensive 5% in each metro area.
The luxury market has been impacted – many times more so – by prevailing economic conditions, such as soaring interest rates, a roller-coaster stock market, rising inflation and economic certainty. For a luxury buyer, a higher mortgage rate can add thousands of dollars to a monthly mortgage payment.
However, part of the 1Q drop comes from its comparison to 1Q 2021, a year when high-end home sales surged almost 80%.
According to the study, luxury-sales growth started to slow in the spring and summer of 2021 amid an extreme shortage of high-end properties for sale. While the inventory crunch has started to ease, a shortage of luxury homes on the market still likely contributes to the 17.8% drop in sales.
“The pool of people qualified to purchase luxury properties is shrinking because the stock market is falling and mortgage rates are rising,” says Elena Fleck, a Redfin real estate agent in West Palm Beach. “The good news for buyers is the market is becoming more balanced and competition is easing up. Of course, that doesn’t help the scores of Americans who have been priced out altogether.”
Rising interest rates have also triggered a housing-market slowdown in recent weeks. The average 30-year fixed mortgage rate was 5.23% during the week ending June 9, down slightly from a 2022 peak of 5.3% but still significantly higher than the 3.11% average buyers were paying at the end of 2021. Rates for jumbo loans, the type most luxury borrowers use, have also surged. The rate on a 30-year jumbo loan was 5.06% as of June 8, up from 3.23% at the end of 2021.
“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,” said Fleck. “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.”
The median sale price of luxury homes rose 19.8% year over year to $1.15 million during the three months ending 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.
- 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%), followed by Oakland, California (-35.1%); Dallas (-33.8%), Austin, Texas (-33%) and West Palm Beach (-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 (+33%), followed by San Diego (+31.4%), Jacksonville (+31.2%), Nashville (+30.3%) and Fort Worth (+29.4%).
- New listings: New listings of luxury homes increased in 16 of the top 50 metros. The biggest gain was in Warren, MI (+32.2%), followed by New York (+31.1%), San Antonio (+22.8%), Detroit (+22.3%) and Nashville (+18.4%). The biggest declines were all in California: Oakland (-28.4%), Los Angeles (-27.6%), Anaheim (-25.2%), San Francisco (-24.9%) and San Jose (-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%), 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 (+15.1%), Columbus, OH (+7.3%), Detroit (+4.7%) and Nashville (+0.1%).
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