In housing growth, it’s a tale of two markets – one with the luxury sector and one that continues to struggle with high interest rates and low inventory.
According to the statistics, total real estate sales nationwide fell by 4% in the first quarter. Redfin tuna. However, luxury real estate sales rose more than 2%, marking the best year-over-year growth in three years, according to Redfin.
Real estate experts and brokers attribute the difference to interest rates and supply. With mortgage rates currently above 7% for 30-year fixed loans, most homebuyers find the price out of reach. However, wealthier buyers are snapping up homes with cash, making them less vulnerable to higher interest rates.
About half of luxury homes, which Redfin defines as homes priced in the top 5 percent of metro areas, were purchased with all cash in the quarter, according to Redfin. This is the highest rate in at least a decade. In Manhattan, according to Miller Samuel, all cash transactions accounted for 68% of total sales, a record high.
A flood of cash also pushed prices higher. According to Redfin data, median luxury home prices rose nearly 9% in the quarter, nearly double the gains of the broader market. During this period, the median price of a luxury home reached an all-time high of $1,225,000.
“People who can afford high-end homes are rushing in now because they believe prices are going to keep going up,” said David Palmer, a broker at Redfin in Seattle, whose luxury homes in Seattle are selling for $2.7 million. “They are ready to buy with more optimism and less anxiety.”
The Trump International Hotel and Tower in New York is seen from the balcony of an apartment unit at Avalonbay Community Inc. Park Loggia Apartments at 15 West 61st Street in New York on May 15, 2019.
Mark Abramson Bloomberg
The luxury market is also benefiting from an increase in the supply of homes for sale. Because wealthy sellers are more likely to buy with cash, they are less concerned than most homeowners about closing the deal with a low-rate mortgage. This frees up high-end listings, creates more inventory and drives more sales.
According to Redfin, the number of luxury homes for sale rose 13% in the first quarter, while the rest of the real estate market fell 3%. While overall luxury inventory remains “well below” pre-pandemic levels, the number of luxury listings coming online jumped 19% in the first quarter, the report said.
“Prices continue to rise for high-end homes, so homeowners think now is a good time to cash out their equity,” says Palmer.
Still, not all luxury markets thrive, with the strongest price growth occurring in areas not typically known for luxury homes. According to Redfin, the market with the fastest growth in luxury home prices was Providence, Rhode Island, where prices rose 16%, followed by New Brunswick, New Jersey, where prices rose 15%. New York City saw the biggest drop in home prices, down 10%.
In terms of overall luxury home sales, Seattle had the strongest growth, with sales increasing 37%, the strongest of any metro area. Austin, Texas ranked second with 26% sales growth, followed by San Francisco with 24% growth.
Luxury homes sold the fastest in Seattle, averaging nine days on the market, followed by Oakland, Calif., and San Jose, Calif.
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