The real estate market is currently experiencing a significant divide, with the luxury sector booming while the rest of the market struggles with challenges such as higher interest rates and low inventory. According to Redfin, overall real estate sales fell by 4% nationwide in the first quarter. However, luxury real estate sales saw an increase of more than 2%, marking their best year-over-year gains in three years.
Real estate experts and brokers attribute this divergence in the market to interest rates and supply. With mortgage rates surpassing 7% for a 30-year fixed loan, many homebuyers are finding themselves priced out of the market. On the other hand, affluent and wealthy buyers are able to purchase homes with cash, making them less susceptible to the impact of high interest rates.
Nearly half of all luxury homes, defined as those in the top 5% of their metro area by value, were purchased with all cash in the first quarter. This marks the highest share of cash purchases in at least a decade. In Manhattan, all-cash deals reached a record high of 68% of all sales, as reported by Miller Samuel. The influx of cash purchases is also driving up prices in the luxury market, with median luxury-home prices rising by nearly 9% in the quarter.
Wealthy sellers, who are more likely to buy homes with cash, are not as concerned about trading out of a low-rate mortgage. As a result, the upper end of the market has experienced an increase in listings, leading to greater inventory and more sales. During the first quarter, the number of luxury homes for sale surged by 13%, in contrast to a 3% decline seen in the rest of the housing market.
While overall luxury inventory remains below pre-pandemic levels, the number of luxury listings that came onto the market in the first quarter jumped by 19%. Price growth in the luxury market has been particularly robust in areas that are not traditionally associated with luxury homes. Providence, Rhode Island saw the fastest luxury price growth, with prices rising by 16%, followed by New Brunswick, New Jersey, where prices increased by 15%. On the other hand, New York City experienced a decline in luxury home prices by 10%.
When it comes to overall sales of luxury homes, Seattle emerged as the top-performing metro area, with a 37% increase in sales. Austin, Texas followed closely with a 26% increase, while San Francisco saw a 24% uptick in sales. In terms of speed of sales, Seattle led the pack with a median days on the market of nine days, followed by Oakland, California, and San Jose, California.
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