Homes at Rivo Alto Island in Miami Beach, Florida, USA, on Wednesday, February 1, 2023.
Eva Marie Uzcategui | Bloomberg | Getty Images
The US housing market is being hit hard by higher mortgage rates, and luxury home sales are seeing the worst of it.
Luxury home sales fell 45% in the three months ended Jan. 31 compared to the same period a year earlier, according to Redfin, a real estate brokerage. Redfin defines luxury homes as those considered to be in the top 5% by estimated market value. Sales of non-luxury homes were down about 38% in that period.
Miami, which had seen a huge influx of wealthy shoppers migrating from the Northeast in the early days of the Covid pandemic, saw sales drop nearly 69%. That was followed by the Nassau County-Suffolk County area on New York’s Long Island, home of the Hamptons – down nearly 63%. Some of California’s priciest markets also saw a sharp drop in sales as they also experienced massive pandemic sales.
Although not all luxury buyers use a mortgage, they are affected by the economy in general, and the stock market in particular. So volatility in financial markets has a big impact on the luxury real estate market.
“The silver lining for luxury buyers still in the market is that competition is tight, and jumbo loans often have lower mortgage rates than other types of loans, in part because there is less risk of senior buyers choose their mortgages. “, said Chen Zhao, Redfin’s director of economics research in a press release. “Wealthy house hunters often get additional rate discounts from their banks as a resource for storing large sums of money there.”
Competition is easing not only because of falling demand. Supply is increasing. Inventory rose 7% year over year, the biggest increase since 2015.
But supply remains historically tight – not much above the peak in 2022. New listings are also down 22%, indicating higher supply as homes sit longer .
That lack of supply has pushed luxury home prices higher. The median price was up 9% compared to the same period last year to $1.09 million. Luxury prices hit an all-time high of 1.1 million last spring.
