Real estate is increasingly a tale of two markets: a luxury sector that is flourishing, and the rest of the market that continues to struggle with higher rates and low inventories.
According to Redfin, total real estate sales nationwide fell 4% in the first quarter. Still, luxury real estate sales rose more than 2%, which Redfin said was the best annualized gain in three years.
Real estate experts and brokers point out the differences in interest rates and offers. With mortgage rates for a 30-year loan now above 7%, most homebuyers feel prices are out of their reach. However, affluent and wealthy buyers purchase homes with cash, making them less vulnerable to high rates.
According to Redfin, nearly half of all luxury homes (defined by Redfin as homes in the top 5% of their metro area by value) were purchased with cash in the quarter. That is the highest share in at least ten years. According to Miller Samuel, all-cash deals in Manhattan reached a record 68% of all sales.
The flow of cash is also driving up prices at the top. Average prices for luxury homes rose nearly 9% in the quarter — roughly double the increase in the broader market, according to Redfin. The average price of luxury homes reached a record $1,225,000 during this period.
“People who have the means to buy expensive homes are jumping in now because they are confident that prices will continue to rise,” said David Palmer, a Redfin agent in Seattle, where the median-priced luxury home for $ 2.7 million are sold. “They are willing to buy with more optimism and less fear.”
The Trump International Hotel & Tower New York building is seen from the balcony of an apartment building in the AvalonBay Communities Inc. condominium. Park Loggia at 15 West 61 Street in New York, May 15, 2019.
Mark Abramson | Bloomberg | Getty Images
The luxury market also benefits from a greater supply of homes for sale. Because wealthy sellers are more likely to buy with cash, they aren't as concerned about exchanging a low-rate mortgage as most homeowners are. That freed up the top end of the listings, creating more inventory and generating more sales.
The number of luxury homes for sale rose 13% in the first quarter, compared with a 3% decline for the rest of the housing market, according to Redfin. While total luxury inventory remains “well below” pre-pandemic levels, the number of luxury listings coming online during the first quarter rose 19%, the report said.
“Luxury home prices continue to rise, so homeowners feel now is a great time to cash in on their home equity,” Palmer said.
Still, not all luxury markets are booming, and the strongest price growth is in areas not typically known for luxury homes. According to Redfin, the market with the fastest growth in luxury prices was Providence, Rhode Island, with prices rising 16%, followed by New Brunswick, New Jersey, where prices rose 15%. New York City saw the biggest drop in prices, down 10%.
When it comes to total luxury home sales, Seattle posted the strongest growth of any metro area, with sales increasing 37%. Austin ranked second with a 26% increase in sales, followed by San Francisco with a 24% increase.
Luxury homes sold fastest in Seattle, with an average market time of nine days, followed by Oakland, California, and San Jose, California.
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