Luxury Housing Market Plunges to New Low as Priciest Inventory Rises

Stock market declines and recession concerns stopped the luxury market in its tracks in Q3, with home sales in the top percentile of the market declining 38% year over year, according to Redfin.

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Throughout most of the pandemic, the luxury market has been able to buck the trends, with sales remaining robust among wealthy buyers who were able to surmount price spikes and add to their portfolio of primary, secondary, and investment properties.

However, the luxury market’s reign finally slowed in the third quarter, according to Redfin‘s latest report on Wednesday. Sales among the top five percent of the market fell a record-breaking 38 percent — 6.6 percent more than the declines seen in homes in the 35th-65th percentile based on market value (31.4 percent).

“The luxury market and the overall housing market have lost momentum this year due to many of the same factors: inflation, relatively high-interest rates, a sagging stock market, and recession fears,” the report read. “But the high-end market has slowed at a sharper clip for a handful of reasons.”

“Luxury goods are often among the first to get cut from budgets during times of economic stress, [and] luxury properties are frequently used as investment properties, and with home values and rents poised to fall in 2023, investment prospects are lackluster,” it continued. “High-end home sales saw outsized growth during the pandemic, so they have more room to fall, [and] affluent buyers often have significant funds stored in the stock market, which has been losing value.”

Redfin said the annual decline in luxury-home sales has been largely concentrated along the coasts, with Nassau County, NY (-65.6 percent) experiencing the sharpest drop. Four California metros rounded out the top five as San Diego (-60.4 percent), San Jose (-58.7 percent), Riverside (-55.6 percent), and Anaheim (-55.5 percent) also saw their sales pace decline lopped in half.

Unsurprisingly, the decline in demand has impacted inventory and home price growth.

Luxury-home inventory levels rose to the highest level seen since 2016, with the number of luxury U.S. homes for sale rising 5.2 percent year over year to approximately 163,000 active listings, while the supply of non-luxury homes slid 5.7 percent from Q3 2021.

Southern and midwestern markets experienced the largest jumps in inventory, with Austin, TX (+51 percent), Denver (+50.1 percent), Nashville (+35.7 percent), Warren, MI (+29.8 percent), and Atlanta (+25.9 percent). Meanwhile, San Jose (-32.2 percent), Anaheim (-22.5 percent), Los Angeles (-19.4 percent), St. Louis (-18.5 percent), and Miami (-16.6 percent) saw their inventory contract by almost a fourth.

Luxury and non-luxury home-price growth slowed 7 percent year-over-year to 10 percent during the third quarter, with the median sale price for luxury and non-luxury homes landing at $1.1 million and $325,000, respectively.

Following its standing in sales and inventory trends, San Jose was the only market to see the median price for luxury homes decline (-0.3 percent). Meanwhile, Miami (+28.1 percent), Tampa, FL (+27.7 percent), Charlotte (+25 percent), West Palm Beach, FL (+25 percent), and Orlando (+23.7 percent) continued to experience double-digit growth.

San Francisco (+0.1 percent), Nassau County (+2.1 percent), Oakland (+3.1 percent), and Portland, OR (+5.8 percent) barely held onto their gains with growth in the low single digits.

Despite the mixed bag of results, Seattle-based Redfin agent Shoshana Godwin said there’s an upward shift coming ahead as a decline in mortgage rates encourages luxury buyers to reenter the market.

“There has been a small shift in the market that’s not fully showing up in the data yet. With mortgage rates falling, a lot of house hunters see this as their moment to come back and compete,” Godwin said. “Many of my buyers are taking out jumbo loans—mortgages typically used for purchases of high-end homes.”

BY MARIAN MCPHERSON

December 28, 2022

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