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Luxury Home Sales See Biggest Decline Ever

Written by Ashley Sutphin Posted On Wednesday, 18 January 2023 00:00
Luxury Home Sales See Biggest Decline Ever

According to Redfin data going back to 2012, luxury home sales in the U.S. saw their most significant drop ever. Sales of luxury homes fell more than 38% year-over-year during the three months ending November 20, 2022. Non-luxury homes saw a decline in sales of more than 31%.

This is based on an analysis where all U.S. residential properties are grouped into tiers based on Redfin Estimates of their values as of December 10, 2022. In the Redfin report, a luxury home was one that was considered in the top 5% based on its market value, and non-luxury homes fell in the 35-65th percentile based on their market value.

Many factors likely impacting the luxury home market are similar to the rest of the real estate market. For example, high interest rates, inflation, a poorly performing stock market, and fears of recession affect the entire housing market.

The higher-end market may have gone down faster for a few reasons.

First, when there is economic stress or turbulence, luxury items are typically the first to be removed from budgets. Luxury homes are often investment properties, and we’re looking at a potential fall in home values and rents in 2023, so investing in these homes may not have much appeal.

High-end home sales were outsized during the pandemic, so they also have more room to fall.

Additionally, wealthier buyers often have more of their money in the stock market, and its value has declined significantly over the past year.

The expensive markets in coastal areas saw the biggest declines in the sales of high-end homes.

Long Island in Nassau County, NY, had luxury home sales that went down a staggering 65% year-over-year during the three months that ended on November 30. That represented the biggest decline of the most populous metro areas in the U.S.

Then, following this trend were four markets in California. San Diego luxury home sales declined more than 60%, San Jose nearly 59%, Riverside almost 56%, and Anaheim also almost 56%. These markets are too expensive for most buyers even when the economy is strong, so it makes sense that more buyers would avoid them during a potential downturn.

The number of luxury homes available for sale in the U.S. rose the most in six years—5.2% year-over-year. There were around 163,000 luxury homes available at that time, but the supply of non-luxury homes declined by 5.7%.

Prices of both luxury and non-luxury homes went up 10% year-over-year during the three-month period that ended November 30, but that’s compared to 17% growth a year before.

The median sale price for a luxury home was $1.1 million, and for non-luxury homes, $325,000.

Luxury home sales fell in every single metro, and the supply of these properties rose in 21 metros. Austin, Denver, and Nashville saw some of the most significant increases in the supply of luxury homes.

There is a bright side for properties that aren’t considered luxury. There are some early signs that demand from homebuyers is starting to go up a bit as interest rates have declined slightly. According to Redfin’s Homebuyer Demand Index, which measures requests for tours and other services related to buying, demand is rising, and mortgage applications are reflecting something similar.

Finally, even luxury homes might see some increase in demand, as real estate agents report that many of their buyers are taking out jumbo mortgages typically for buying high-end homes.

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