While high mortgage rates are keeping working Americans out of the housing market, wealthy buyers with the wherewithal to buy multi-million dollar homes in cash are doing just fine.
In fact, luxury home prices, sales and inventory are all outpacing the regular real estate market, a reversal from last year when luxury home buyers pulled back.
That’s according to new information report According to Redfin, the median price for luxury homes in the U.S. rose 9% year-over-year to $1.1 million in the third quarter, while the median price for non-luxury homes rose just 3.3% to $340,000. Ta. Both reached record high levels for the third quarter.
of red fin For the purposes of the analysis, luxury homes are defined as homes estimated to be in the top 5% of their respective metropolitan area based on market value, and non-luxury homes are estimated to be in the 35th to 65th percentile based on market value. Defined as a residence.
The resilience of the luxury home market in today’s cool real estate environment can be attributed to the ability of wealthy home buyers to purchase with cash and avoid the current 7% to 8% interest rates.
About 43% of luxury homes sold in the third quarter were purchased with cash, up from about 35% a year earlier, according to Redfin. In contrast, all-cash purchases of non-luxury homes were only 28%, which he says is virtually unchanged from the third quarter of 2022.
“Wealthy homebuyers have more tools to weather the storm of high mortgage prices,” said Jason Aleem, senior vice president of real estate at Redfin. “Many of them can afford to pay in cash, meaning they are completely spared from high mortgage rates.”
Aleem said other buyers are choosing to refinance in the future, opting for higher interest rates. This is an “expensive option that is not viable for many low-income consumers,” he said.
“Wealthy Americans are still spending big, thanks in large part to pandemic savings and resilient housing and stock prices,” he added.
But Darryl Fairweather, Redfin’s chief economist, says this trend may not last long.
“Many luxury buyers have the funds to move forward even with rising mortgage rates, but as interest rates and house prices remain high, home searches for some wealthy individuals will be delayed in the coming months,” he said. “They are likely to be relegated to the sidelines for a while.” “Higher costs and an increase in the number of luxury homes for sale could slow growth in luxury prices.”
But for now, luxury inventory has held up well compared to other segments of the housing market. Redfin reported that while the total supply of luxury homes for sale increased by nearly 3% year-over-year, the supply of non-luxury homes fell by a record 20.8%.New luxury properties increased by 0.3%, while new non-luxury properties decreased by 22%.
Sales of luxury homes are down compared to last year, but not as much as other homes. Luxury sales were down 10.6% year over year, while non-luxury sales were down 17%, according to Redfin.
Where luxury home sales grew the most
Luxury home sales in Tampa, Florida, a city with many cash buyers, rose nearly 36% from a year ago, the largest increase in the country, according to Redfin. The number of new luxury properties also increased by about 14% year over year in the third quarter, the largest increase in any metropolitan area 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 great time to be a cash buyer. There are a lot of cash buyers in Florida,” said Eric Ausiello, Redfin Tampa sales manager. “We still see a lot of affluent home seekers moving in from the Northeast and the West Coast for lower taxes, different politics, and closer family relationships. Tampa also has a lot of new construction. There are, and many of them are luxury condominiums.”