According to a new analysis by Redfin, sales of luxury U.S. homes and investment properties fell 28.1% year-over-year during the three months ending Aug. 31, 2022. That total marks the largest decline in a three-month-span recorded by Redfin in over a decade, eclipsing the 23.2% plunge that occurred when the onset of the coronavirus pandemic brought the housing market to a near standstill roughly two years ago.
Redfin also reported that sales of non-luxury homes fell the most on record, decreasing 19.5% during the three months ending Aug. 31, slightly outpacing the 19% decline during the three months ending June 30, 2020.
“High-end-house hunters are getting sticker shock when they see the impact of rising mortgage rates on paper. For a luxury buyer, a higher interest rate can equate to a monthly housing bill that’s thousands of dollars more expensive,” said Redfin Chief Economist Daryl Fairweather. “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. Luxury goods are often the first thing to get cut when uncertain times force people to reexamine their finances.”
The rise in mortgage rates, as evidenced by Freddie Mac’s reporting last week that the 30-year fixed-rate mortgage (FRM) hit 6.29%, a 14-year high.
Expensive California markets are leading the drop in high-end-home sales, as in the Oakland region, luxury-home sales plunged 63.9% year-over-year during the three months ending Aug. 31, the largest decline among the 50 most populous U.S. metropolitan areas. San Jose and San Diego also experienced decreases of more than 55%. These markets have something else in common: they’ve seen larger declines in luxury listings than anywhere else in the country as sellers have backed off in response to ebbing demand.
As demand cools, home-price growth in the luxury market has slowed as well, with the median sale price of luxury homes rose 10.5% year-over-year to $1.1 million during the three months ending Aug. 31, compared with an annual increase of 20.3% a year earlier and a record gain of 27.8% during the three months ending June 30, 2021.
Prices of luxury homes are rising at a slower pace than prices of non-luxury homes, which increased 15.5% year-over-year to $335,000 during the three months ending Aug. 31. That’s down slightly from an annual increase of 17.2% a year earlier, and a record gain of 19.7% during the three months ending March 31, 2022.
In terms of luxury home inventory, the number of luxury homes for sale fell 1.9% year-over-year to roughly 169,000 during the three months ending Aug. 31, compared to a record decline of 25% one year earlier. Luxury-home supply is still down on a year-over-year basis, but has increased from the beginning of 2022, as the number of luxury homes on the market is up 39.2% from a record low of roughly 121,000 during the three months ending Feb. 28.
Click here to view Redfin’s analysis of luxury home sales.