Luxury real estate prices are soaring, reaching an all-time record as the market experiences a divergence from the rest of the struggling real estate industry. While overall real estate sales fell 4% nationwide in the first quarter, luxury real estate sales increased by more than 2%, marking their best year-over-year gains in three years. This divergence can be attributed to interest rates and supply.
With mortgage rates now above 7% for a 30-year fixed loan, most homebuyers are finding prices out of reach. However, affluent and wealthy buyers are able to purchase homes with cash, making them less vulnerable to high rates. In fact, nearly half of all luxury homes were bought with all cash in the first quarter, marking the highest share in at least a decade. In Manhattan, all-cash deals reached a record 68% of all sales.
The influx of cash is not only increasing demand but also driving up prices in the luxury market. Median luxury-home prices rose nearly 9% in the quarter, which is roughly twice the increase seen in the broader market. The median price of luxury homes hit an all-time record of $1,225,000 during this period. Wealthy buyers are confident that prices will continue to rise, leading them to make purchases with more optimism and less apprehension.
Another factor contributing to the luxury market’s success is the increase in the supply of homes for sale. Since wealthy sellers are more likely to buy with cash, they are not as concerned about trading out of a low-rate mortgage like most homeowners. This has freed up the upper end of listings, creating more inventory and driving more sales. The number of luxury homes for sale jumped 13% in the first quarter, compared to a 3% decline for the rest of the housing market.
While luxury markets are booming overall, there are some variations in price growth across different areas. Surprisingly, the markets experiencing the fastest luxury price growth are not typically known for luxury homes. Providence, Rhode Island, saw prices increase by 16%, followed by New Brunswick, New Jersey, with a 15% increase. On the other hand, New York City experienced the biggest price decline, with prices down 10%.
In terms of overall sales of luxury homes, Seattle posted the strongest growth among metro areas, with sales up 37%. Austin, Texas ranked second with a 26% increase in sales, followed by San Francisco with a 24% increase. Luxury homes sold the fastest in Seattle, with a median of only nine days on the market.
Overall, the luxury real estate market is thriving while the rest of the industry grapples with challenges such as higher rates and low inventory. Affluent and wealthy buyers are taking advantage of their ability to purchase with cash and are driving up prices in the luxury sector. With more supply of homes for sale and strong sales growth in certain areas, the luxury market shows no signs of slowing down.
