Luxury homes have risen in price by 9 percent in the past year, far outpacing the growth in non-luxury sales, a new analysis shows.
Experts say the trend is being driven by a boom in wealthy buyers paying cash for their homes to avoid high mortgage rates. The average interest rate on a 30-year fixed-rate mortgage hovers just under 8 percent, which discourages many homeowners from moving.
Data from real estate portal Redfin shows that the average sales price of a luxury US property rose to $1.1 million in the third financial quarter, while the cost of a non-luxury home rose 3.3 percent to $340,000.
Researchers defined a “luxury home” as one in the top 5 percent of their respective metropolitan area based on market value. So-called “non-luxury homes” are homes estimated to be in the 35th and 65th percentiles of the market.
Jason Aleem, Redfin’s senior vice president of real estate operations, said: “Wealthy homebuyers have more resources to weather the storm of high mortgage rates.
Luxury homes have risen in price by 9 percent in the past year. Pictured: A seven-bedroom, 10-bathroom mansion in Aspen, Colorado, that sold for $76 million. It is the most expensive home to sell in the US in the third financial quarter
‘Many of them can afford to pay in cash, thus avoiding high mortgage interest rates altogether. Others choose to take on a higher rate and refinance later – an expensive option that is not feasible for many lower-income consumers.”
He added that affluent Americans are still spending money thanks to large pandemic savings and their resilient home and stock values.
About 43 percent of luxury home purchases are now paid for in cash, compared to 35 percent last year. By comparison, only 28 percent of non-luxury homes were purchased with cash.
However, Redfin’s report notes that higher-end home sales fell, but at a slower pace than the overall market.
Luxury real estate sales fell 10.6 percent year-on-year, while non-luxury real estate sales fell 17 percent.
Data from real estate portal Redfin shows that the average sales price of a luxury US property rose to $1.1 million in the third financial quarter. Pictured: A $50 million Palm Beach mansion in Florida. It was the fifth most expensive home sale in the US between July and September
The Palm Beach property has five bedrooms and 6.5 bathrooms. It covers 7,448 square meters
The house sold on July 28 for $50 million – the equivalent of $6,713 per square foot
It features a concrete deep-water dock that can accommodate a yacht of up to 130 feet, according to the Redfin listing
But researchers noted that some U.S. metro areas are doing much better than others. In Tampa, Florida – which has seen a huge wave of migration in recent years – sales of luxury homes have increased by 36 percent.
This was followed by Las Vegas, Austin and Sacramento, where luxury real estate sales rose 33.4 percent, 14.5 percent and 10.1 percent, respectively.
Redfin also collected the top ten most expensive home sales on its books between July 1 and September 30.
A $76 million mansion in Aspen, Colorado, topped the list. The property comes complete with seven beds, ten bathrooms and measures 21,500 square feet.
The second most expensive sale also took place in Aspen, Colorado, costing $63.8 million. The 15,000-square-foot unit features six beds and 8.5 bathrooms.
A five-bedroom, 6.5-bathroom mansion in Palm Beach, Florida, also attracted a price tag of $50,000. Meanwhile, a 9,384-square-foot property in Carpinteria, California, sold for $46.8 million.
The report comes after figures showed mortgage rates fell slightly last week, breaking a seven-week streak of consecutive increases.
A home in Carpinteria, California, pictured, became the seventh most expensive home sale in the U.S. this quarter
According to Redfin’s listing, the property sold for $46.9 million on September 19
It features five bedrooms, eight bathrooms and 9,384 square feet
The average 30-year fixed-rate mortgage contract fell slightly to 7.76 percent in the week ending Nov. 2, according to the latest data from government-backed lender Freddie Mac. This is lower than the 7.79 percent the week before.
Increased mortgage rates have essentially chilled the U.S. housing market, as many homeowners entered into 30-year mortgage deals when interest rates were at record lows. For example, in April 2020, the average interest rate on a mortgage was 0.05 percent.
By moving, the average buyer risks adding as much as €1,000 per month to their mortgage costs.
So far, this stagnation in activity has not caused house prices to fall due to low housing inventory. But experts have repeatedly predicted that a recession is coming.
Analysts at Wells Fargo warned last week that the US housing market is heading for a 1980s-style recession, thanks to such “higher for longer” interest rates.
“After a broad improvement in the first half of 2023, the housing sector now appears to be contracting, in addition to the recent rise in mortgage rates,” Wells Fargo economists Charlie Dougherty and Patrick Barley wrote in a research note.
They added: ”An environment of ‘higher and longer interest rates’ would likely not only depress demand, but could also limit supply by reducing new construction and discouraging potential sellers with low mortgage rates from putting their homes up for sale to offer.’