Houses on Rivo Alto Island in Miami Beach, Florida, USA, Wednesday, February 1, 2023.
Eva Marie Uzcategui | Bloomberg | Getty Images
The US housing market has been hit hard by higher mortgage rates and luxury home sales are experiencing the worst.
Luxury home sales fell 45% in the three months ended Jan. 31 in comparison with the same period a 12 months earlier, based on real estate broker Redfin. Redfin defines luxury homes as those estimated to be in the top 5% based on estimated market value. Sales of non-luxury homes fell by around 38% over the period.
Miami, which experienced a large influx of rich buyers migrating from the Northeast in the early days of the Covid pandemic, saw sales fall by almost 69%. It was followed by Nassau County-Suffolk County on Recent York’s Long Island, home to the Hamptons, down nearly 63%. A few of California’s most costly markets have also seen big drops in sales as they too experienced big sales as a consequence of the pandemic.
While not all luxury buyers use mortgages, they’re influenced by the wider economy, more specifically the stock market. Volatility in the financial markets due to this fact has a big impact on the luxury real estate market.
“The silver lining for luxury buyers still in the market is that there’s little competition and large loans now often have lower mortgage rates than other sorts of loans, partly because there’s less risk that buyers with high-end to not pay their mortgages,” Chen Zhao, head of economic research at Redfin, said in a release. “Wealthy home hunters often receive additional rebates from their banks along with holding significant funds there.”
Competition is weakening not only due to falling demand. The availability is growing. Inventories rose 7% year-on-year, the biggest increase since 2015.
Nevertheless, supply continues to be historically low – not much higher than 2022’s record lows. Recent listings are also down 22%, indicating that provide is higher as houses stand longer.
This lack of supply has driven up the price of luxury homes. The common price increased by 9% in comparison with the same period a 12 months earlier to USD 1.09 million. Last spring, the prices of luxury goods hit a record high of 1.1 million.