While high mortgage rates keep working Americans out of the housing market, wealthy buyers with the means to purchase multi-million-dollar homes in cash are in a good position.
In fact, luxury home prices, sales and inventory are all outperforming the regular real estate market, a reversal from last year when luxury property buyers declined.
That’s according to a new report from Redfin, which shows that the median price of luxury homes in the U.S. rose 9% year over year to $1.1 million in the third quarter, while the median price of non-luxury homes rose just 3.3%. To reach 340 thousand dollars. Both reached their highest levels in any third quarter ever.
Redfin’s analysis defines luxury homes as those estimated to be in the top 5% of their metro area based on market value, and non-luxury homes are defined as those estimated to be in the 35th to 65th percentile based on market value.
The resilience of the luxury housing market in today’s cold real estate environment is likely due to the ability of affluent homebuyers to buy with cash and avoid today’s 7% to 8% interest rates.
Nearly 43% of luxury homes sold in the third quarter were purchased for cash, up from about 35% a year earlier, according to Redfin. In contrast, only 28% of all cash purchases are for non-luxury homes, which remains essentially unchanged since the third quarter of 2022.
“Wealthy homebuyers have more tools to weather the storm of higher mortgage rates,” said Jason Aleem, senior vice president of real estate operations at Redfin. “Many of them can pay cash, which means they avoid high mortgage rates altogether.”
Other buyers are choosing to get a higher interest rate and refinance in the future — “an expensive option that is not possible for many low-income consumers,” Aleem said.
“Wealthy Americans are still spending big, largely due to savings from the pandemic, housing resilience and stock values,” he added.
However, this trend may not continue, according to Redfin chief economist Darryl Fairweather.
“While many luxury buyers have the resources to get ahead even when mortgage interest rates are high, higher interest rates and home prices will likely push some wealthy home hunters to the sidelines in the coming months,” he said. “Rising costs, coupled with an increase in the number of luxury homes for sale, could slow the growth of luxury goods prices.”
However, for now, luxury stocks are still holding up well compared to other sectors of the housing market. Redfin reported that the total supply of luxury homes for sale grew nearly 3% from the previous year compared to a record 20.8% decline in the supply of non-luxury homes. New luxury listings rose 0.3% while new non-luxury listings fell 22%.
Luxury home sales are slow compared to last year, but not down compared to other homes. Luxury sales fell 10.6% year-over-year compared to a 17% decline in non-luxury sales, according to Redfin.
Where sales of luxury homes jumped the most
And in Tampa, Florida — home to many cash buyers — luxury home sales rose nearly 36% year over year, according to Redfin, the largest increase in the country. New luxury listings also rose nearly 14% year over year in the third quarter, the largest increase in every metro except New York.
This was followed by Las Vegas (33.4%), Austin, Texas (14.5%), Sacramento, California (10.1%), and San Francisco (9.6%).
“It’s a good time to be a cash buyer, and there are a lot of cash buyers in Florida,” said Eric Osillo, Redfin Tampa sales manager. “We still see many affluent home hunters moving from the Northeast and West Coasts because they want lower taxes, different policies and/or to be closer to family. Tampa also has a lot of new construction, much of which is upscale condos.
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