US real estate presents two faces – a luxury market that is booming and the rest of the market that continues to face higher prices and limited supply.
Total real estate sales fell 4% nationwide in the first quarter, according to Redfin. However, luxury home sales rose more than 2%, marking the biggest year-over-year gains in three years, according to Redfin.
Real estate experts and brokers discuss the divergence in interest rates and supply. With mortgage rates over 7% for a 30-year fixed loan, most homebuyers find prices out of reach. Affluent and wealthy buyers, however, buy homes with cash, making them less vulnerable to high interest rates.
Nearly half of all luxury homes (defined by Redfin as homes in the top 5% of the best neighborhoods for value) were all-cash purchases in the quarter, according to Redfin. This is the highest rate in at least a decade. In Manhattan, cash deals reached a record 68 percent of all sales, according to Miller Samuel.
The flood of cash is also driving prices over the top. Prices for the average luxury home rose nearly 9% in the quarter — about double the increase seen in the broader market, according to Redfin. The median price of luxury homes hit an all-time high of $1,225,000 during the period.
“Those who can afford luxury homes are doing so now because they think prices will continue to rise,” said David Palmer, a Redfin real estate agent in Seattle, where the average luxury home sells for $2.7 million.
The luxury home market is also being supported by an increase in the supply of homes for sale. Since wealthy sellers are more likely to buy with cash, they aren’t as concerned about paying off a low-interest mortgage – as most homeowners are.
The number of luxury homes for sale rose 13% in the first quarter, compared with a 3% decline for the rest of the housing market, according to Redfin. While overall luxury home inventory remains “well below” pre-pandemic levels, the number of online luxury home sales in the first quarter rose 19%.
“Prices continue to rise for high-end homes, so homeowners feel it’s a good time to cash in on their equity,” Palmer said.
However, not all luxury home markets are on the rise, and the strongest price growth is in areas not typically known for luxury homes. According to Redfin, the market with the fastest rising luxury prices was Providence, Rhode Island, with prices rising 16 percent, followed by New Brunswick, New Jersey, where prices rose 15 percent. New York saw the biggest drop in prices, down 10%.
In terms of total luxury home sales, Seattle saw the largest increase of any region, with sales up 37%. Austin took second place with a 26% increase in sales, followed by San Francisco with a 24% increase.
moneyreview.gr with information from CNBC
