Luxury homes fall 28% as rest of market plummets 19.5%

Luxury home sales have plummeted 28 percent in the US, while regular market sales have also fallen 19.5 percent as federal interest rates rise and inflation ramps up.

Luxury home sales fell the most year-on-year in August since the pandemic brought the housing market to a standstill in 2020, with sales falling 23.2 percent, according to redfin’s final report.

Sales have fallen in all of the country’s top 50 metropolitan areas, with the biggest declines in Oakland, California, at 63.9 percent; San Jose, California, at 59.6 percent; Miami at 55.5 percent, San Diego at 55.3 percent and Seattle at 52 percent.

Portland; Nassau County, New York; Washington, D.C., New York; and St. Louis all saw the smallest drop in luxury home sales.

Meanwhile, in the non-luxury market, San Diego; San Jose; Anaheim, California; Phoenix; and Washington, DC have seen the biggest drop in sales.

The biggest changes have been concentrated in the West Coast metropolitan areas, where markets have been hit by a mass exodus of citizens deterred by expensive housing, rising crime and warnings of an impending recession. The rise of the work-from-home culture also allowed West Coast tech workers to move to more affordable cities.

Major metropolitan areas such as Austin, Washington DC and Miami have also been hit as the cities have been popular getaways during the height of COVID, but as the pandemic subsides, many have backed off.

Redfin Chief Economist Daryl Fairweather said the latest plunge has been fueled by rising interest rates, inflation and the latest rise in mortgage rates, which topped 6 percent last week and surpassed rates since the housing market crash in 2008.

“Higher home hunters get a sticker shock when they see the impact of rising mortgage rates on paper,” Fairweather said. “For a luxury buyer, a higher interest rate can equate to a monthly home bill that is thousands of dollars more expensive.”

“Someone who was in the market for a $1.5 million home last year can now have a maximum budget of $800,000 thanks to higher mortgage rates,” he added. “Luxury goods are often the first to be cut when uncertain times force people to rethink their finances.”

In Oakland, where luxury home sales have fallen the most, the average high-end home cost $3.15 million in August, about 21.3 percent more than last year.

But with sales dropping, the number of active listings has fallen by more than 40 percent in the past year, while the number of new listings has fallen by nearly 50 percent.

This has caused prices to fluctuate across the market, causing some high-end homes to drop $1 million or more in price.

Leading the non-luxury market, San Diego’s median price was $860,000 in August, up 16.2 percent from last year.

As with Oakland, the active listing in San Diego fell, dropping 25 percent over the past year, while new listings fell 32.8 percent.

While prices have risen, Miami real estate agent Sam Chute noted that sales prices are declining following the home-buying pandemic.

Year-over-year, prices for luxury homes rose just 10.5 percent, about half of the previous year’s increase of 20.3 percent.

“The prices of luxury homes have risen so much that many buyers just don’t feel they can justify the purchase,” Chute said. “That drop in demand is slowing price growth.

“Some homes that would have sold for $5 million before the pandemic are now priced at $10 million or more, even though they’ve only received minor cosmetic updates. That is a hard pill for today’s buyers, especially in a refrigerated market.’

Goldman Sachs economists recently warned that home price growth across the US was expected to come to a complete halt next year thanks to dwindling demand and too much real estate up for grabs.

Mark Zandi, chief economist at Moody’s Analytics, warned last month that house prices could fall by as much as 20 percent next year if a recession hits, and that prices in parts of the country are overvalued by as much as 72 percent.

The emerging housing crisis comes after a period of relative affordability in 2020 and last year during the pandemic, due to record low mortgage rates – despite prices also rising during that period to meet an equally increasing demand.

This year, however, shortly before the Fed first decided to raise interest rates to curb record inflation, banks slashed mortgage rates in their own effort to cover future losses that could arise in a forecast recession.

In the biggest one-week jump since 1987, the 30-year fixed-rate mortgage, the most popular mortgage package, rose to 5.78 percent in June, from 5.23 percent at the end of May.

Since then, it has reached an even more pronounced 6 percent from September.

A year ago, affordability was less than half of what it is today, at 2.9 percent.

Earlier this month, the Federal Reserve raised interest rates by a further 0.75 percentage point for the fourth time in a bid to stifle inflation.

It was the third consecutive rise of 0.75 points, the largest increase the Fed has made in more than two decades.

The Fed’s move in September pushed the short-term interest rate, which affects many consumer and business loans, to 3 to 3.25 percent, the highest level since early 2008.

Fed officials predict they will raise their benchmark rates further to about 4.4 percent by the end of the year, a full point higher than they had envisioned in June.

And they expect to raise the rate again to about 4.6 percent next year. That would be the highest level since 2007.