Sales of luxury homes have beaten the rest of the U.S. real estate market, with the sale price median rising nine percent year-over-year to $1.1 million.
Things are changing for the luxury housing market, which experienced a steep decline in late 2021, due in large part to the effects of the COVID pandemic. According to Redfin, their data points to a nine percent increase in luxury home prices during the third quarter of 2023. This growth is three times faster than that of non-luxury homes, which have a median sale price of 3.3% to $340,000.
Redfin defines luxury homes as the top five percent of their respective metropolitan area based on market values, while non-luxury homes fall in the 35th to 65th percentile based on market values.
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According to Mansion Global, Daryl Fairweather—Redfin’s chief economist—attributes this large gap to the eight percent mortgage rates that have greatly doubled since last year. Many wealthy buyers, however, have managed to dodge today’s seven to eight percent interest rates by paying everything through cash.
The Power of All-Cash Transactions
Redfin’s data revealed that 42.5% of luxury buyers paid in cash, while only 28% of non-luxury home buyers conducted cash transactions. The rise in luxury home sales may point to geopolitical fears around the world, with buyers hailing from a variety of countries like the Middle East, Asia, and Europe. A fair share of wealthy Americans are also jumping back into real estate.
“Affluent Americans are still spending big, in large part because of pandemic savings and resilient housing and stock values,” explained Jason Aleem, senior vice president of Redfin’s Real Estate Operations.
In addition to rising sales, the total supply of actively listed luxury real estate has grown by 2.9% compared to 2022’s third quarter. While this may not be a notably big increase, it easily outperforms the 20.8% decline in the supply of non-luxury homes.
Most cash-based buyers reside in Tampa, Florida, according to Redfin’s data, which experienced a 35.8% surge in sales during the third quarter of 2023—the largest increase in the United States. Las Vegas (33.4%); Austin, Texas (14.5%); Sacramento, California (10.1%); and San Francisco (9.6%) also boast some of the highest increases.
A Short-Lived Trend?
That said, though the luxury home market is thriving at the moment, the growth may not last for very long. Though cash purchases have given affluent buyers more mobility, increasingly high rates and home prices may still pose a challenge to some of them.
“High costs, along with the uptick in the number of high-end homes for sale, could cause luxury price growth to cool,” elaborated Fairweather. Still, with the luxury market experiencing many setbacks in recent years, any form of growth—however brief—is a welcome one across high-end businesses and industries.
Banner photo by John Fornander via Unsplash.
