Homes on Rivo Alto Island in Miami Beach, Florida, United States, on Wednesday February 1, 2023.
Eva Marie Uzcategui | Bloomberg | Getty Images
The US housing market is being hit hard by higher mortgage rates and luxury home sales are seeing the worst of it.
Luxury home sales fell 45% in the three months ended Jan. 31 compared to the same period last year, according to Redfin, a real estate agent. Redfin defines luxury properties as those in the top 5% based on estimated market value. Sales of non-luxury homes fell about 38% during this period.
Miami, which had seen a massive influx of wealthy shoppers from the Northeast in the early days of the Covid pandemic, saw its sales fall nearly 69%. Next came the Nassau County-Suffolk County region on New York’s Long Island, home of the Hamptons — down nearly 63%. Some of the most expensive California markets also saw large sales declines because they, too, were experiencing large pandemic sales.
While not all luxury buyers use mortgages, they are being influenced by the broader economy, and the stock market in particular. The volatility on the financial markets is therefore having a disproportionately high impact on the luxury real estate market.
“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 is less risk that high-end buyers deal with defaulted on their mortgages,” Chen Zhao, head of economic research at Redfin, said in a release. “Wealthy home seekers also often get additional interest rebates from their banks as a perk for holding substantial funds.”
The competition is not only easing because of falling demand. The offer increases. Inventories rose 7% year over year, the biggest increase since 2015.
But supply is still tight, even historically — not much higher than the record lows of 2022. New registrations are also down 22%, suggesting supply is higher because homes have been standing longer.
This lack of supply has pushed up luxury property prices. The median price increased 9% year-over-year to $1.09 million. Luxury prices hit an all-time high of 1.1 million in the spring of last year.