Luxury home prices rose at twice the pace of non-luxury homes at the end of last year because high mortgage rates are just “irrelevant” to many affluent buyers, according to a Redfin report.
In fact, the share of luxury homes bought with all cash reached a record high in 2023, the analysis found, with more than 46% of the fourth quarter’s luxury home sales paid that way, up from 40% a year earlier. “Luxury prices are rising at twice the rate of non-luxury prices largely because so many affluent buyers are able to buy homes in cash, rendering today’s elevated mortgage rates irrelevant,” the author of the report, Dana Anderson, wrote.
The typical luxury home sold for $1.17 million in the fourth quarter of last year, an all-time high, up 8.8% from the prior year. Your typical non-luxury home reached a record-high, too, at $340,000, but rose at roughly half the pace, with just a 4.6% year-over-year increase.
Anderson further found that while the mid-level housing market is effectively frozen, it’s springtime in the luxury sector: “High mortgage rates have a more chilling effect on the rest of the market, upping interest payments and keeping price increases modest.”
A Redfin agent based in Phoenix said in the report that “a lot of luxury buyers are coming in with cash, snapping up expensive homes.” But Redfin’s Anderson said that supply is still below pre-pandemic norms, as the inventory crisis across the market hits mansions too. However, new listings of luxury homes went up almost 20% from the previous year during the fourth quarter, the biggest increase in two years and comparable to pre-pandemic levels, according to Redfin. The total number of luxury homes for sale also went up, increasing 13% year over year. But non-luxury new listings fell roughly 3% and total non-luxury inventory dropped nearly 10% in the same period.
There are a few reasons why that happened, according to Redfin. For one, rich sellers put their homes on the market to cash out while prices were high. The lock-in effect also doesn’t have much of an effect on the wealthy, so while others have held on tight to their homes and refused to sell for fear of losing their low mortgage rate, well-to-do buyers haven’t been held back as much. Luxury new listings were also at their lowest level in a decade by the end of 2022, so they had room to move up.
And yet, the supply of luxury homes is still below typical fourth-quarter levels. Supply will likely increase this year and luxury homeowners will be able to “command record-high prices,” so Redfin expects them to start selling.
“More luxury listings will temper price growth as the year goes on,” Redfin senior economist Sheharyar Bokhari said in the report. “Overall, that’s a good thing for the high-end market: Sellers will still fetch fair prices, buyers will have more to choose from, and sales should tick up.”
Of 50 major metropolitan areas, the median sale price of luxury homes rose the most in Newark and New Brunswick, N.J., and Orlando, Fla. The median sale price of luxury homes fell in only eight metropolitan areas, with the biggest decline in Austin, per Redfin. The analysis is based on Redfin estimates of values as of January, and luxury homes are defined as those in the top 5% of their respective metropolitan area based on market value.
The most expensive home sales across the country in the fourth quarter of last year aren’t a big surprise. Miami comes out on top, with a $79 million home sale; then New York with both $75 million and $65 million home sales; and then Aspen, Colo., with a $60 million transaction. San Francisco (technically Atherton) and Los Angeles cracked the back half of the top 10 with home sales of $40 million and $34 million, respectively.
Last year was a continuation of an era of housing haves and have-nots—but even if you’re among the wealthy, you could get outbid in all cash for a small number of homes. “Even though the supply of luxury homes surged from a year earlier, it’s still well below pre-pandemic levels, leading to competition from well-heeled buyers over a limited number of homes,” Anderson wrote.