In the face of uncertain economic conditions, fewer buyers are looking to purchase high-end real estate.
The sale of luxury homes fell 38.1% year-over-year during the three months ending Nov. 30, according to a Redfin report. The brokerage reported that this was the biggest decline on record, and one that outpaced the record 31.4% decline in sales of non-luxury homes.
Affluent buyers have pulled away from the high-end real estate market for a number of reasons, one of which is concerns about a recession going into 2023, the report stated. As these worries persist, luxury goods are the first to get slashed from a borrower’s budget.
The stock market’s poor performance of late, which is likely impacting the bottom line of borrowers who purchase high-end real estate, was another reason for the decline in this corner of the market.
Luxury properties are also no longer as strong of an investment. With home values and rents likely to fall in 2023, high-end real estate may not give the returns that buyers are looking for, the report said.
Among the metropolitan areas that the brokerage tracks, Nassau County, New York on Long Island experienced the largest plummet of luxury-home sales, falling 65.6% year-over-year during the three months ending Nov. 30.
Four California metro areas also experienced a notable downturn in its luxury market: San Diego (-60.4%), San Jose (-58.7%), Riverside (-55.6%) and Anaheim (-55.5%). New listings in Anaheim and San Diego fell by 37.1% and 26.2%, respectively.
With fewer buyers scooping up luxury properties, listings of these homes increased in 21 metros, with the largest boost registered in Austin, Texas (51% year-over-year) and Denver (50.1%).
But with mortgage applications picking up, homebuyer demand is likely to rebound slightly in 2023. This trend may carry over into more sales of higher-end properties.
The brokerage noted that its real estate agents have seen more buyers “move off of the sidelines” as interest rates have come down to 6.27%.
The slight increase in home buying activity hasn’t translated to more pending home sales or new listings. The holiday season is also typically slow, so the brokerage expects sale activity to tick up in mid-January.
“There has been a small shift in the market that’s not fully showing up in the data yet. With mortgage rates falling, a lot of house hunters see this as their moment to come back and compete,” said Shoshana Godwin, agent at Redfin, in a written statement. “While some data shows jumbo mortgage rates above 6%, some of my buyers are getting rates in the low 5% range.”
