What's king in the luxury housing market?
Luxury home sales in the US are on an upswing as affluent buyers capitalize on the belief that high-end prices will keep climbing, according to a new report from Redfin.
The median luxury home sold for a record $1.2 million in the first quarter, up 8.7% from a year ago. Non-luxury homes reached a record median price of $345,000 but only rose 4.6% compared to last year.
*insert Redfin luxury graph*
Cash is king
A key reason for the strong luxury segment is the substantial number of affluent buyers paying entirely in cash. Nearly half (46.8%) of all luxury home purchases in the first quarter were cash deals, another record high. Rates over 6.5% have dampened overall demand but are largely irrelevant for wealthy cash buyers.
“People with the means to buy high-end homes are jumping in now because they feel confident prices will continue to rise,” said David Palmer, a Redfin Premier agent in the Seattle metro. “They’re ready to buy with more optimism and less apprehension.”
Sellers have contributed to the boom as listings for luxury homes have soared 18.5%. This increase, coupled with a 12.6% rise in total luxury home inventory, represents the largest on record for the luxury home market.
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“It’s a similar sentiment on the selling side: Prices continue to increase for high-end homes, so homeowners feel it’s a good time to cash in on their equity,” Palmer said.
While inventory has grown, the overall supply of luxury homes still remains lower than typical pre-pandemic levels. This limited supply further contributes to rising prices in the luxury sector.
“Supply of luxury homes is shooting up for several reasons. One, the mortgage rate lock-in effect has a lesser impact on luxury homeowners because they’re more apt to buy their next home in cash or be in a financial position to take on a higher rate,” Redfin said in its report. “Two, owners of luxury homes, many of whom have a lot of equity, are putting their houses on the market to cash in while prices are at record highs. Three, luxury supply had a lot of room to grow, as it was sitting at low levels during the first quarter of 2023.
“It’s worth noting that while luxury inventory is on the rise, total supply and new listings are below typical pre-pandemic first-quarter levels. Relatively low inventory is one reason luxury prices are increasing.”
“Even though mortgage rates remain elevated and demand isn’t as high as it was during the pandemic, many homebuyers and sellers feel the worst of the housing downturn is behind us,” Palmer added.
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