Sales of luxury homes dropped by 17.8% over the course of a year due to the plummeting stock market, rising mortgage rates, and economic uncertainty. The prices of luxury homes are still growing, but they slowed their pace in the last few months, especially compared to the pandemic-driven astronomical prices from last year. The pandemic brought record low rates, which prompted many high-earners to buy properties away from the city.
Sales of the most expensive houses rose almost 80% when rates fell to 2.31%. The summer of 2021 was when the sales started declining, but prices and homeowning costs were not the problems. It was the lack of supply that paused the incline of luxury sales in the housing market. Now that the rates jumped above 5.2%, the supply is filling up, but the sales are declining fast, so much so that sellers are deciding to modify their asking prices.
Sales of luxury properties fell in every metro area but one. The most significant decline in sales is seen in Nassau County and Oakland, CA where there are between 35% and 45% fewer sales than a year ago. The only increase in sales is visible in New York, where there are 30% more sales than a year ago. That is because people are coming back to the cities, as there is no fear of disease and the offices are open again.
A property is considered to be luxurious if it is in the top 5% of all listed properties based on market value. Most real estate agencies would say that all listings above $850k are luxurious. With that in mind, it is easy to assume many buyers need to take out a jumbo loan. Jumbo loans exceed the regulated loan amount set by Fannie Mae and Freddie Mac, so they are big loans with high-interest rates. Bearing in mind that mortgage rates rose very fast, it is not hard to explain this sudden disinterest in luxury properties.
Prices, however, continued rising in every metropolitan area in the US, with the biggest year-over-year increase in Tampa, FL, and San Diego, CA. The median price for a luxury property is $1.15 million, but prices go as high as $20 million in some parts of the US.
Only 16 metro areas saw a year-over-year rise in new listings out of 50 metros on Redfin’s list. California saw a major drop in listings, as the bottom four cities on a new-listings list are Oakland, Los Angeles, Anaheim, San Francisco, and San Jose. New York and Warren, MI have the highest surge of new listings.
New York has a spike in sales and a spike in listings, which makes it a hot market for luxury properties. However, there is one other problem new owners are facing, and it is in connection with the assessed value of people’s houses increasing so much, making the property tax much higher than it would have been before. New York has always been more costly than the rest of the states, but it seems like it is spreading to places where people went to escape higher taxes, such as Texas.
It is safe to say that the luxury housing market has been discouraged by the rates, stocks, and taxes. Some buyers are unbothered by this, but others are looking for other ways to invest their money.
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