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Luxury home prices are up, and wealthy buyers are paying in cash to avoid sky-high mortgage rates.
According to a new report from the real estate site Redfin, the average sales price of a luxury home in the U.S. jumped 9 percent last year to a whopping $1.1 million, the highest level of any third quarter on record. At the same time, the sales price of a non-luxury home rose just 3.3 percent to $340,000. For context, the report defined luxury homes as those estimated to be in the top 5 percent of their metro area.
“Affluent Americans are still spending big, in large part because of pandemic savings and resilient housing and stock values,” said Jason Aleem, Redfin’s senior vice president of real estate operations. Of the total number of luxury houses that were purchased, two in five, or a whopping 42.5 percent of them, were acquired in all-cash transactions, while this time last year, only 34.6 percent of the luxury sales were all cash.
“Wealthy home buyers have more tools to weather the storm of high mortgage rates,” Aleem said. “Many of them can afford to pay in cash, meaning they’re escaping high mortgage rates altogether. Others are choosing to take on a higher rate and refinance later—an expensive option that isn’t feasible for a lot of lower-income consumers.”
Luxury home prices are growing three times faster compared to the overall housing market.
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As the price of luxury homes continues to outpace the overall market, there’s been an increase in inventory too. Active listings were up almost 3 percent compared to 2022, and new listings grew 0.3 percent. On the other hand, non-luxury listings saw a 20.8 percent drop in supply, while new listings fell 22 percent, the lowest third-quarter level in over a decade.
Per the report, the luxury market’s performance can be chalked up to deep-pocketed buyers who have the means to relocate and take on a higher mortgage rate if need be. Another factor is an overall increase in homebuilding, which tends to result in newly built properties that fall into the top 5 percent of the market.
Still, there might be tougher times ahead. “While many luxury buyers have the resources to forge ahead even when mortgage rates are elevated, stubbornly high rates and home prices will likely push some affluent house hunters to the sidelines in the coming months,” explained Redfin Chief Economist Daryl Fairweather. “High costs, along with the uptick in the number of high-end homes for sale, could cause luxury price growth to cool.”
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