Luxury home sales are down, with Miami and the Hamptons hit hard

Homes on Rivo Alto Island in Miami Beach, Florida, USA, Wednesday, February 1, 2023.

Eva Marie Uzcategui | Bloomberg | Getty Images

The US housing market is being hit hard by high mortgage rates, and luxury home sales are seeing their worst ever.

Sales of luxury homes fell 45% in the three months ended Jan. 31 compared to the same period last year, according to real estate brokerage Redfin. Redfin defines luxury homes as homes in the top 5% based on estimated market value. Sales of non-luxury homes fell by about 38% during that period.

Sales in Miami, which saw a massive influx of wealthy buyers from the Northeast in the early days of the Covid pandemic, are down about 69%. This was followed by Nassau County-Suffolk County on Long Island, New York, home to the Hamptons, with a decrease of about 63%. Some of California’s priciest markets also saw big sales declines as they also experienced massive pandemic sales.

While not all luxury buyers use mortgages, they are influenced by the broader economy, specifically the stock market. Therefore, volatility in the financial markets has a significant impact on the luxury real estate market.

“The silver lining for luxury buyers still in the market is that competition is rare and jumbo loans now offer lower mortgage rates more often than other loan types, in part because high-end buyers are less likely to default on their mortgages. “said Chen Zhao, head of economic research at Redfin. “Affluent house hunters are often offered additional benefits as a perk for saving large sums of money from banks.”

Competition is not only due to reduced demand. The offer is growing. Inventories rose 7% for the year, the largest increase since 2015.

However, supply is still historically tight—not much higher than the record low in 2022. New listings are also down 22%, indicating higher supply as homes sit longer.

A supply shortage has pushed up the price of luxury homes. The average price increased by 9% compared to the same period last year and amounted to 1.09 million dollars. The price of a suite reached 1.1 million in the spring of last year.

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