A report from Redfin on Wednesday said that luxury home sales in the U.S. fell 38.1 per cent in the past three months ending 30 Nov. 2022, the biggest drop in at least 10 years.
Meanwhile, the decline reported a 31.4 per cent drop in sales in the mainstream market. Though that’s also a record, according to the data which goes back to 2012.
Simultaneously, inventory for expensive homes rose 5.2 per cent YoY during the same time period, the largest increase since 2016 as per the records. The supply of non-luxury homes diminished by 5.7 per cent to about 552,000 units.
The luxury residential market and the overall housing market have lost momentum this year due to inflation, recession fears, relatively high interest rates, and a sagging stock market. But the high-end real estate market has witnessed sharper slowdown.
Luxury goods, including homes, are the first things that are eliminated from tight budgets for starters. In addition, high-end homes witnessed unsustainable thrive during the pandemic, so have further fallen now that the economic environment has changed, while wealthy buyers may have seen significant market losses over the last year.
The report said that luxury properties are being frequently used as investment properties, and investment prospects are lackluster with home values and rents about to fall in 2023. Redfin defines luxury homes to be in the top 5 per cent based on market value, while non-luxury homes are in the 35th to 65th percentile based on market value.
According to the report, Nassau County located on New York’s Long Island registered the biggest drop in luxury home sales by 65.6 per cent annually, followed by four California metro areas — San Diego (-60.4 per cent), San Jose (-58.7 per cent), Riverside (-55.6 per cent ) and Anaheim (-55.5 percent).
Even when the economy is thriving, these markets are prohibitively expensive for most buyers, so it’s not surprising more buyers might back off during a downturn.
Although there are some indications that the high-end housing market may improve next year. As interest rates decline, mortgage applications and Redfin’s Homebuyer Demand Index, which tracks requests for tours and other services have risen.
Seattle Redfin agent Shoshana Godwin said in the report that there has been a small shift in the market that’s not fully showing up in the data yet. A lot of house buyers see this as their moment to come back and compete, as mortgage rates are falling. Many of my buyers are taking loans and mortgages typically used for purchases of high-end homes. Some of my buyers are getting rates in the low 5 per cent range, while some data shows jumbo mortgage rates above 6 per cent.”
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