Luxury and Investment Home Sales Dip Nearly 40%

January 5, 2023

Redfin reports that sales of luxury U.S. homes and investment properties fell 38.1% year-over-year during the three months ending November 30, 2022, marking the largest decline on record, outpacing the record 31.4% decline in the sales of non-luxury homes.

The luxury and investment home market, and the overall housing market have lost momentum this year due to many of the same factors: inflation, relatively high interest rates, a sagging stock market and fears of a nationwide recession. But the high-end market has slowed at a sharper clip for a handful of reasons, including:

Luxury goods are often among the first to get cut from budgets during times of economic stress.
Luxury properties are frequently used as investment properties, and with home values and rents poised to fall in 2023, investment prospects are lackluster.
High-end home sales saw outsized growth during the pandemic, so they have more room to fall.
Affluent buyers often have significant funds stored in the stock market, which has been losing value.

Redfin found that expensive coastal markets led the decline in high-end home sales. In Nassau County, New York (Long Island), luxury-home sales plummeted 65.6% year-over-year during the three months ending November 30, 2022, the largest decline among the most populous U.S. metropolitan areas.

Long Island was followed by four California metros:

San Diego (-60.4%)
San Jose (-58.7%)
Riverside (-55.6%)
Anaheim (-55.5%)

These markets are prohibitively expensive for most buyers even when the economy is thriving, so it’s not surprising more buyers would back off during a downturn.

Conversely, the smallest decreases were found in:

Kansas City, Missouri (-20.2%)
Cleveland (-21.5%)
Virginia Beach, Virginia (-26.2%)
Milwaukee (-26.4%)
Charlotte, North Carolina (-28.3%)

However, Redfin has found that there are early signs that overall homebuyer demand is beginning to creep back as interest rates decline, which may ultimately cause the decline in luxury sales to ease.

“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 Seattle Redfin Agent Shoshana Godwin. “Many of my buyers are taking out jumbo loans—mortgages typically used for purchases of high-end homes. While some data shows jumbo mortgage rates above 6%, some of my buyers are getting rates in the low 5% range.”

Redfin reported the number of luxury U.S. homes for sale rose 5.2% year-over-year to roughly 163,000 during the three months ending November 30, 2022, the largest increase since 2016. By comparison, the supply of non-luxury homes declined 5.7% to approximately 552,000. The decline in luxury home sales is contributing to the rise in supply, but new listings are also a factor. New listings of luxury homes fell just 2.9% year-over-year during the three months ending November 30, 2022, compared with a 19.8% drop in listings of non-luxury homes.

Home-price growth has also slowed across the housing market due to waning demand, as prices of both luxury/investment homes and non-luxury homes rose 10% year-over-year during the three months ending November 30, 2022, compared with 17% growth one year earlier. The median sale price was $1.1 million for luxury homes, and $325,000 for non-luxury homes.

In terms of housing supply, active listings of luxury homes rose in 21 metros, with the biggest year-over-year increases found in:

Austin, Texas (51%)
Denver (50.1%)
Nashville (35.7%)
Warren, Michigan (29.8%)
Atlanta (25.9%)

The largest declines in housing supply were found in:

San Jose (-32.2%)
Anaheim (-22.5%)
Los Angeles (-19.4%)
Louis (-18.5%)
Miami (-16.6%)

New listings of luxury homes fell in 39 metros nationwide, with the largest declines year-over-year reported in:

San Jose (-39.2%)
Oakland, California (-37.1%)
Anaheim (-29.8%)
San Diego (-26.2%)
Orlando, Florida (-25.9%)

The largest gains in luxury homes and investment properties were found in:

Denver (44%)
Warren (32.4%)
Austin (20.2%)
Detroit (16.3%)
Atlanta (15%)

The median sale price of luxury and investment homes rose year-over-year in all but one metro, San Jose (-0.3%), as the biggest jumps were reported in the following metros: