Luxury home sales are down 28 percent in the US, with regular market sales also down 19.5 percent as Federal Reserve interest rates rise and inflation is rampant.
Luxury home sales saw their biggest year-on-year decline in August since the pandemic brought the housing market to a standstill in 2020, sending sales down 23.2 percent, according to the Redfin Latest report.
Sales fell in the nation’s top 50 metro areas, with the largest drop in Oakland, California, at 63.9 percent; San Jose, California 59.6 percent; Miami 55.5 percent, San Diego 55.3 percent and Seattle 52 percent.
Portland. Nassau County, New York; Washington, D.C., New York City; St. Louis saw the least drop in luxury home sales.
Meanwhile, in the non-luxury market, San Diego; San Jose; Anaheim, CA; Phoenix. Washington, DC saw the biggest drop in sales.
The biggest changes are in West Coast urban areas, where markets have been affected by a mass exodus of citizens deterred by rising home prices, crime and warnings of a looming recession. The emergence of a work-from-home culture has also freed West Coast tech workers to move to more affordable cities.
Major cities such as Austin, Washington DC and Miami, which were popular havens during the peak of COVID, have also been affected, but as the pandemic fades, many of them have returned.
Redfin chief economist Daryl Fairweather said the recent drop was driven by higher interest rates, inflation and the recent rise in mortgage rates, which jumped above 6 percent last week, topping rates since the 2008 housing crash.
“High-end home hunters are shocked to see the impact of higher mortgage rates on paper,” Fairweather said. “For buyers of luxury goods, a high interest rate can equate to a monthly housing bill of more than thousands of dollars.”
“Someone who was in the market for a $1.5 million home last year may now have a maximum budget of $800,000 thanks to higher mortgage rates,” he added. Luxury goods are often the first thing that is cut short when uncertain times force people to re-examine their finances.
The largest decline in sales of luxury and non-luxury homes year-on-year was concentrated in California and the West
US luxury home sales fell 28.1 percent year on year in August, outpacing the previous record drop of 23.2 percent in June 2020
Oakland, California saw the biggest drop in sales of luxury homes, dropping nearly 64%. New listings, like the $5.6 million home above, are down 50 percent
High-end home prices fluctuate in cities across the United States. Pictured: A Miami home was worth $7.1 million in July, $1.8 million less than a year earlier
Sales of luxury homes in San Francisco fell 49.6 percent. While high-end home prices (above) rose 14.5 percent, the market shrank 21.5 percent lower than listings.
Pictured: An $8 million Seattle home saw its price drop by $1 million as luxury home sales plummet
In Auckland, where sales of luxury homes have fallen the most, the median price of a high-end home was $3.15 million in August, up about 21.3 percent from a year ago.
But with sales down, the number of active listings has fallen more than 40 percent in the past year, with the number of new listings down nearly 50 percent.
This has caused prices to fluctuate across the market, causing the prices of some high-end homes to drop by a million dollars or more.
The median listing price for San Diego, the non-luxury market leader, was $860,000 in August, up 16.2 percent from a year ago.
As with Oakland, active listings are down in San Diego, down 25 percent in the past year, with the number of new listings down 32.8 percent.
While prices have risen, Miami real estate agent Sam Schott notes that sales prices are slowing after the pandemic home buying frenzy.
On an annual basis, luxury home prices rose just 10.5 percent, about half of the previous year’s 20.3 percent increase.
“Luxury home prices have inflated so much that many buyers don’t feel they can justify a purchase,” Schott said. This drop in demand causes price growth to slow.
Some homes that could have sold for $5 million before the pandemic are now fetching $10 million or more, although they have received only minor cosmetic updates. This is a pill that is difficult for buyers today to swallow, especially in a cold market.
The price increase for luxury homes has slowed significantly for both luxury and non-luxury homes as the market cooled
In Las Vegas, sales of luxury homes are down 50 percent year over year, and new listings are down 7 percent. Pictured: $2.2 million luxury home with outdoor pool
In Seattle, median luxury home prices were $2.7 million, as was the house above, however, the number of homes sold fell 52 percent year-over-year in August.
A new study reveals that the housing market in Seattle is slowing faster than any other market in the country — as cash-strapped buyers increasingly shy away from home purchases.
Economists at Goldman Sachs recently warned that home price growth was expected to come to a complete halt across the US next year thanks to sluggish demand and plenty of real estate up for grabs.
Mark Zandi, chief economist at Moody’s Analytics, warned last month that home prices could fall by as much as 20 percent next year if there was a recession, and that prices in parts of the country were overvalued by as much as 72 percent.
The emerging housing crisis comes after a period of relative affordability seen in 2020 and last year during the pandemic, due to record low mortgage rates – although prices also rose during that period to meet rising demand as well.
This year, though, shortly before the Fed decided to raise interest rates to combat record inflation, banks raised mortgage rates dramatically in their own efforts to cover potential losses that would be incurred in the event of an expected recession.
In the biggest one-week jump since 1987, the 30-year mortgage, the most popular housing loan package, was raised to 5.78 percent in June, up from 5.23 percent at the end of May.
It has since reached 6 percent, most noticeably as of September.
A year ago, the affordability rate was less than half what it is today, at 2.9 percent.
The 30-year mortgage rate is now the highest since October 2008 when the housing market collapsed, triggering the Great Recession
The recent increase takes the Federal Reserve’s policy interest rate (seen since 1980) to its highest level since the 2008 financial crisis.
Earlier this month, the Federal Reserve raised interest rates for the fourth time by another 0.75 percentage points, in an attempt to quell inflation.
This was the third consecutive increase of 0.75 point, which was the largest increase implemented by the Federal Reserve in more than two decades.
The Fed’s move in September boosted the benchmark short-term interest rate, which affects many consumer and business loans, to a range of 3 percent to 3.25 percent, the highest level since early 2008.
Federal Reserve officials expect that they will raise their benchmark rate to nearly 4.4 percent by the end of the year, a full point higher than they envisioned last June.
They expect to raise the rate again next year, to about 4.6 percent. This will be the highest level since 2007.