BTN News: In December last year, Fortune declared we were in a “new American era of having or not having a home.” This statement holds true even today, perhaps in a different context. The luxury housing market has reached unprecedented heights in the second quarter of this year, with prices and demand for high-end properties continuing to rise, starkly contrasting with the broader housing market’s downturn. Despite overall economic challenges, affluent buyers are snapping up luxury homes at record prices, illustrating a growing divide in the housing sector.
In the second quarter, the typical luxury home sold for an astounding $1,180,000, marking nearly a 9% increase from the previous year, according to Redfin. This surge is the largest in almost two years and is more than double the rate of non-luxury home price increases, which climbed just under 4% to a median of $342,500, also a record high. The trend highlights a growing gap between the luxury and non-luxury housing markets.
Interestingly, while sales of luxury homes rose slightly in the second quarter, sales of regular homes fell by over 3%, reaching their lowest second-quarter level in a decade. June data from the National Association of Realtors revealed that sales of homes priced over $1 million actually increased year-over-year, whereas all other price categories saw a decline. This indicates that although the overall housing market has slowed since pre-pandemic times, the luxury segment is thriving.
A Redfin agent in Fort Worth noted, “There is still strong demand for well-priced, high-end properties, especially those that are beautifully presented and move-in ready.” The agent cited a recent sale where a property listed for $2.4 million was sold for $2.6 million, illustrating the competitive nature of the luxury market. Properties that are priced correctly, visually appealing, and do not require any work are still attracting multiple offers.
One significant factor contributing to the luxury market’s resilience is the wealth of buyers who can afford to pay in cash, rendering high mortgage rates less of an obstacle. Throughout most of the second quarter, mortgage rates were above 7%, but for cash buyers, this was irrelevant. Nearly 44% of luxury homes sold in the three months ending in May were purchased entirely with cash, a trend consistent with last year. In June, cash sales made up 28% of all transactions, showing little change from the previous year or month.
On a metropolitan level, luxury home prices saw the highest increases in Providence, followed by San Jose and Nassau County, N.Y. Sales of luxury homes rose most significantly in Nashville, Tampa, and Seattle. Notably, the two most expensive homes sold in the second quarter were in Glenwood Springs, Colorado, with one fetching $77 million. Los Angeles had the third most expensive sale at approximately $63 million.
Redfin’s senior economist, Sheharyar Bokhari, remarked, “The luxury market has weathered the chaos caused by high mortgage rates this year, thanks to an abundance of cash buyers.” He added that with sales stabilizing and more homes being listed, it is unlikely that luxury prices will continue to rise at such a rapid rate. Overall, inventory is increasing, and homes are staying on the market longer, even in the luxury segment. A Redfin agent based in Orlando noted, “International cash buyers are still driving activity, but we’ve seen a slowdown in local buyers.”
The landscape of the housing market appears to be shifting. Another Redfin analysis released on Thursday showed that typical monthly housing payments had fallen to their lowest point in four months. If mortgage rates continue to decrease, driven by cooling inflation, payments will drop further. The average weekly fixed 30-year mortgage rate was 6.78%, with daily rates slightly higher.
Despite these shifts, affording a standard home remains challenging. In June, Zillow reported that typical mortgage payments had increased by more than 112% since pre-pandemic times. Home prices surged during the pandemic-driven housing boom, and mortgage rates followed suit as the Federal Reserve raised interest rates to curb inflation. Entry-level homes are becoming scarce, and the income needed to purchase one has nearly doubled since the pandemic. Even as mortgage rates fall and home prices rise more slowly, the market remains far from its pre-pandemic state.
Earlier this month, Shaun Donovan, former U.S. Secretary of Housing and Urban Development under Obama and CEO of Enterprise Community Partners, stated in a CNBC interview, “We are experiencing the worst housing affordability crisis we’ve ever seen in this country.” Redfin’s senior economist, Chen Zhao, echoed this sentiment, saying, “Affordability is really the story in the housing market right now.” Data showed that existing home sales dropped both monthly and annually in June, partly due to potential sellers holding onto their homes for their low or nonexistent mortgage rates. Additionally, demand is low, as evidenced by new home sales falling to a seven-month low in June. It’s not that people don’t need homes; they do, but the costs are deterring them from buying, to the extent that some are even backing out of deals. However, this does not seem to apply to the wealthy.
In conclusion, while the overall housing market faces significant challenges, the luxury segment continues to thrive, driven by cash-rich buyers who are less affected by high mortgage rates. This disparity highlights the growing divide in housing affordability and access, underscoring a critical issue in the current real estate landscape.
