Real estate is increasingly becoming a combination of two markets – the booming luxury segment, and the rest of the market still struggling with high interest rates and low inventory.
Total real estate sales fell 4% nationwide in the first quarter, according to Redfin. However, luxury real estate sales rose more than 2%, posting their best annual gain in three years, according to Redfin.
Real estate experts and brokers explain the difference in interest rates and offers. With mortgage rates now at over 7% for a 30-year fixed loan, most homebuyers are finding the rates out of reach. However, affluent and affluent buyers are snapping up homes for cash, making them less vulnerable to rising interest rates.
Nearly half of all luxury homes, which Redfin defines as homes in the top 5% of a metropolitan area by value, were purchased with all cash in the quarter, according to Redfin. This is the highest share in at least a decade. In Manhattan, cash transactions accounted for a record 68% of total sales, according to Miller Samuel.
The influx of cash also causes prices to rise higher. Median luxury home prices rose nearly 9% in the quarter, nearly double the increase seen in the broader market, according to Redfin. The average price of luxury homes hit a record high of $1,225,000 during this period.
“People who have the ability to afford luxury homes are jumping in now because they feel confident that prices will continue to rise,” said David Palmer, a Redfin agent in Seattle, where the median luxury home sells for $2.7 million. “They are ready to buy with more optimism and less apprehension.”
The Trump International Hotel & Tower building in New York is viewed from the balcony of an AvalonBay Communities Inc condominium. Park Loggia at 15 West 61 Street in New York on May 15, 2019.
Mark Abramson | Bloomberg | Getty Images
The luxury market is also benefiting from an increased supply of homes for sale. Since wealthy sellers are more likely to buy with cash, they don't have to worry about trading out a low-interest mortgage like most homeowners. This freed up the upper limit of listings, creating more inventory and increasing sales.
The number of luxury homes for sale jumped 13% in the first quarter, compared to a 3% decline in the rest of the housing market, according to Redfin. While overall luxury inventory remains “well below” pre-pandemic levels, the number of luxury listings that came online during the first quarter jumped 19%, the report said.
“Luxury home prices continue to rise, so homeowners feel it is a good time to cash in on their equity,” Palmer said.
However, not all luxury markets are thriving, and the strongest price growth is occurring in areas not typically known for luxury homes. According to Redfin, the market that saw the fastest growth in luxury goods prices was Providence, Rhode Island, where prices rose 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 sales of luxury homes, Seattle posted the strongest growth of any metropolitan area, with sales up 37%. Austin, Texas, ranked second, with sales increasing by 26%, followed by San Francisco, with an increase of 24%.
Luxury homes sold fastest in Seattle, with an average days on market of nine, followed by Oakland, California, and San Jose, California.
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