Miami And The Hamptons Suffer The Most From 45% Drop In Luxury Home Sales

Higher mortgage rates seem to be causing a big blow to the housing market in the United States, and luxury home sales are being hit the hardest.

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Luxury home sales in the three months ended January 31 dropped by 45% when compared with the same period a year ago, according to Redfin, a real estate brokerage firm. Based on the estimation of the market value, Redfin defines luxury homes as those that are estimated to be in the top 5% of homes on the market. This period of time was marked by a decrease of about 38% in sales of non-luxury homes.

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Miami, which in the early days of the Covid pandemic saw a massive influx of wealthy buyers migrating from the Northeast, saw sales drop by nearly 69% in the wake of the pandemic. On the Long Island of New York, home to the Hamptons, Nassau County-Suffolk County, on the other hand, saw a decline of nearly 63% compared to the previous year. A number of the most expensive California markets also saw big drops in their sales due to the fact that they, too, were affected by the pandemic.

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Despite the fact that not all luxury buyers use mortgages, their purchasing power is affected by the broader economy and more specifically the stock market. The volatility of financial markets is having a significant impact on the luxury real estate market as well.

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“There is a silver lining for luxury buyers who are still in the market, and that is that competition has been sparse for some time, which means that jumbo mortgages now generally have lower rates than other types of loans. Chen Zhao, Redfin's economics research lead, said that the risk of high-end buyers defaulting on their mortgages is lower. “Often, wealthy house hunters are also offered additional rate discounts by their banks as a way of enticing them to store substantial amounts of money with their banks."

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Falling demand is not the only reason why competition is easing. The supply of goods is increasing. Inventories increased by 7% year over year, which was the highest increase since 2015.

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In spite of this, supply remains historically tight - not that much higher than the record lows set in 2022. Additionally, new listings are down 22%, which indicates that supply is higher since homes are sitting longer.

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The lack of supply has driven up the price of luxury homes. Compared with the same period last year, the median price increased by 9% to $1.09 million. The price of luxury homes reached an all-time high of 1.1 million last spring.

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