Real estate is increasingly a tale of two markets – a booming luxury sector and the rest of the market, which continues to struggle with higher interest rates and low inventory.
According to Redfin, total home sales fell 4% nationally in the first quarter. However, according to Redfin, luxury home sales rose more than 2%, posting their best year-over-year gains in three years.
Real estate experts and brokers point out the divergence in interest rates and supply. With mortgage rates now above 7% for a 30-year fixed loan, the prices are out of reach for most home buyers. However, wealthy and affluent buyers purchase homes with cash, making them less vulnerable to high interest rates.
Nearly half of all luxury homes, defined as homes in the top 5% of their metro area by value, were purchased entirely with cash in the quarter, according to Redfin. This is the highest proportion in at least a decade. According to Miller Samuel, cash deals in Manhattan accounted for a record 68% of all sales.
The flood of cash is also driving up prices at the top. According to Redfin, average luxury home prices rose nearly 9% in the quarter, about double the increase in the broader market. The average price of luxury homes reached an all-time record of $1,225,000 during this period.
“People who have the means to buy luxury homes are jumping in now because they're confident prices will continue to rise,” said David Palmer, a Redfin broker in Seattle, where the median-priced luxury home is going for $2, Sold for $7 million. “They are ready to buy with more optimism and less concern.”
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The Trump International Hotel and Tower New York building is seen from the balcony of a unit in the AvalonBay Communities Inc. Park Loggia residential complex at 15 West 61 Street in New York on May 15, 2019.
Mark Abramson | Bloomberg | Getty Images
The luxury market also benefits from a larger supply of homes for sale. Because wealthy sellers are more likely to buy with cash, they aren't as worried about getting out of a low-interest mortgage as most homeowners. This freed up the upper end of listings, creating more inventory and generating more sales.
According to Redfin, the number of luxury homes for sale rose 13% in the first quarter, compared to a 3% decline in the rest of the real estate market. While overall luxury inventory remains “well below” pre-pandemic levels, the number of luxury listings that came online in the first quarter increased 19%, the report said.
“Luxury home prices continue to rise, so homeowners are finding now is a good time to cash in on their equity,” Palmer said.
Still, not all luxury markets are booming, and the biggest price increases are occurring in areas not typically known for luxury real estate. According to Redfin, the market with the fastest increase in luxury prices was Providence, Rhode Island, with a price increase of 16%, followed by New Brunswick, New Jersey, where prices rose 15%. New York City saw the largest price decline, down 10%.
When it comes to overall luxury home sales, Seattle saw the strongest growth of any metro area, with sales up 37%. Austin, Texas, came in second with a 26% increase in sales, followed by San Francisco with a 24% increase.
Luxury homes sold fastest in Seattle, with an average time on market of nine days, followed by Oakland, California and San Jose, California.
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