Even wealthy buyers are hitting the pause button
A new Redfin report estimates sales of luxury homes dropped 38.1% year-over-year, the biggest decline in 10 years.
- A sluggish stock market and uncertainty around investment potential listed as factors.
- While sales are down, year-over-year prices remain up around 10%.
One sign that efforts to tame inflation are impacting all income levels? Luxury home sales experienced a record drop near the end of 2022, according to a Dec. 28 Redfin report.
Sales of the top 5% of homes dropped 38.1% year-over-year during the three months ending Nov. 30, the biggest decline on record for the report, which goes back to 2012. The drop was steeper than non-luxury home sales, which fell 31.4% for the same period, and represents a shift from a few months ago when the luxury market was holding steady.
The decline in high-end property sales is related to a couple of factors, according to the report. For one thing, luxury properties — which are frequently purchased as investment properties — don’t currently look like a good short-term investment. With values and rents expected to fall in 2023, many are holding off.
Another factor is that affluent buyers often have significant funds tied up in the stock market. With the market down around 10% for the year, buyers have little incentive to cash in stocks to use that money toward a home purchase.
High-priced coastal markets led the way in luxury home sale declines, with Long Island, New York, posting a 65.6% year-over-year drop, followed by the California metro areas of San Diego (down 60.4%), San Jose (down 58.7%), Riverside (down 55.6%) and Anaheim (down 55.5%).
“These markets are prohibitively expensive for most buyers even when the economy is thriving, so it’s not surprising more buyers would back off during a downturn,” according to the report.
Luxury home sales in one of the largest markets could be unpredictable in the coming months. In November, Los Angeles voters approved a “mansion tax” which would add a 4% tax on home sales between $5 million and $10 million, and a 5.5% tax on sales above $10 million as a way to tackle the homeless and affordable housing crisis. While the new tax is slated to take effect in April, the measure is currently facing legal challenges.
Prices for luxury homes have followed the rest of the market, slowing down but remaining up year-over-year. Both luxury and non-luxury home prices rose 10% year-over-year during the three month period ending Nov. 30, down from 17% a year earlier. The median sale price was $1.1 million for luxury homes and $325,000 for non-luxury homes.
Year-over-year, the median price of high-end homes dropped in only one metro area, San Jose (down 0.3%). The biggest jumps were in Miami (up 28.1%), Tampa (up 27.7%) and Charlotte (up 25%).
The slowdown in high-end home sales has also meant a rise in inventory. Redfin estimated that luxury homes for sale rose 5.2% year-over-year to roughly 163,000 during the three months ending Nov. 30, the largest increase since 2016.
Write to Dave Gallagher.