Contrasting Real Estate Markets: Luxury Sector Thrives as Rest Struggles

Real estate markets across the U.S. are experiencing a notable divergence, with the luxury sector booming while the rest of the market faces challenges of higher rates and low inventory. Overall real estate sales fell 4% nationwide in the first quarter, yet luxury real estate sales increased more than 2%, marking their best year-over-year gains in three years, according to Redfin.

The divergence is largely 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, but affluent and wealthy buyers are driving the luxury market, snapping up homes with cash and making them less vulnerable to high rates. Nearly half of all luxury homes, defined by Redfin as homes in the top 5% of their metro area by value, were bought with all cash in the quarter, the highest share in at least a decade. This flood of cash is driving up prices at the top, with median luxury-home prices soaring nearly 9% in the quarter, 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 the period.

Luxury markets are also benefiting from more supply of homes for sale. Since wealthy sellers are more likely to buy with cash, they are not as worried about trading out of a low-rate mortgage like most homeowners, freeing up the upper end of listings and creating more inventory. 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 overall luxury inventory remains “well below” pre-pandemic levels, the number of luxury listings that came online during the first quarter jumped 19%, according to Redfin.

However, not all luxury markets are booming, and the strongest price growth is in areas not typically known for luxury homes. According to Redfin, the market with the fastest luxury price growth was Providence, Rhode Island, with prices up 16%, followed by New Brunswick, New Jersey, where prices were up 15%. New York City saw the biggest price decline, down 10%.

When it comes to overall sales of luxury homes, Seattle posted the strongest growth of any metro area, with sales up 37%. Austin, Texas ranked second with sales up 26%, followed by San Francisco with a 24% increase. Luxury homes sold the fastest in Seattle, with a median days on the market of nine days, followed by Oakland, California, and San Jose, California.