By CHUCK GREEN
Luxury home prices are at an all-time high as a record share of buyers pay cash for homes in the country’s most exclusive areas.
According to a recent report by data journalist Dana Anderson at Redfin, the prices of luxury homes rose at twice the pace of non-luxury homes at the end of last year. The typical luxury home sold for $1.17 million in Q4 2023, up 8.8% year-over-year.
Like the non-luxury market, low inventory has been pushing prices up, but new listings are increasing as more homeowners jump at the chance to snag rich buyers offering cash for their purchases.
“A lot of luxury buyers are coming in with cash, snapping up expensive homes,” Heather Mahmood-Corley, a Redfin Premier agent in Phoenix, Arizona, told Anderson. “High-end homes are selling fast, especially in desirable areas like luxurious Scottsdale, or Tempe, which West Coast transplants love because it’s centrally located. One client recently bought a house in Tempe, flipped it, and it sold for $1.4 million in two days.”
So what is happening behind the scenes?
Chris Porter, senior vice president and chief demographer at John Burns Research and Consulting in Irvine, California, told The Mortgage Note that while all segments of the U.S. housing market felt a slowdown in the second half of 2022, since then, “we’ve seen some reversal in these trends, with inflation receding, the stock market hovering near all-time highs and signs pointing more toward the soft landing scenario the Fed was hoping for.”
Porter noted that people who are in the luxury market are less affected by interest rates. He also pointed out that older generations of Americans have deep pockets because they have benefitted from retirement savings and rising home prices.
“We look at generations a bit differently, based on the decade in which people were born. Those born in the 1960s and earlier have an amazing $107 trillion in net worth – about a quarter of which is tied up in real estate. They’ve really benefitted from equity gains in their homes over the years,” Porter said. “Yes, they’re using some of that to help their children out — including helping their children buy homes — but the sheer volume of wealth certainly benefits the luxury market.”
Florida is a popular destination for luxury buyers.
Jennifer White, a realtor with RE/MAX in Ponte Vedra Beach, Florida, said people were initially drawn to Florida during the Covid pandemic because of lockdowns in other parts of the country.
“Luxury buyers were flocking to coastal towns that weren’t locked down where they could still work and live a life outdoors. Once those buyers were here, a lot of them stayed after falling in love with the beach lifestyle,” White said.
With pristine beaches, top-rated public schools, and public golf, White said her market was already busy prior to the pandemic. But once it hit, property values started rising by 20% to 35%, depending upon the proximity to the ocean.
“There was a huge demand for coastal property and luxury homes. Those buyers came in hot — cash, no contingencies, quick closings, over asking,” White said.
White said her market remains strong.
“We’re still a healthy 15% to 20%, or 25% appreciation each year and homes stay on the market longer than one to two days, but they’re still selling quickly if they are priced appropriately,” she said.
The Carolinas also saw a spike in the number of people who moved there during the pandemic.
Melanie Jones, a realtor with Hodge & Kittrell Sotheby’s International Realty in Raleigh, North Carolina, told The Mortgage Note a high quality of life continues to attract luxury buyers to her state.
She noted The Research Triangle was predicted to double in size from 2016 to 2026, “and the pandemic only accelerated the pace.”
“With a relatively low cost of living and a strong job market, people can afford to purchase their dream home with more features such as a salt pool or room for a home gym or wine cellar,” Jones said.
Jones added that people want to flee the inconvenience and expense of larger cities. The temperate climate in North Carolina helps.
“We have lots of opportunities for outdoor activities such as the greenway system which has over 100 miles of paved pathways connecting parks, neighborhoods, and other attractions,” she said.
Christy Walker, broker/owner at RE/MAX Signature in Phoenix, and Frank Aazami, sales associate and realtor with Russ Lyon Sotheby’s International Realty in Scottsdale, offered additional insight into what is happening in Arizona.
“Because Arizona’s known as a business-friendly environment with low taxes, we have seen a tremendous amount of businesses moving into the state leading to increased demand for luxury properties for those who hold higher positions such as C-suite and upper management,” Walker said. She is also the president-elect of Phoenix Realtors.
The pandemic escalated demand as more people were able to work remotely, at least part of the time, leading to an expansion of short-term rental options.
“More and more luxury buyers found they could own a vacation property and recoup some of their costs by renting those places when they didn’t plan to occupy it,” Walker said.
The median sale price for a luxury home in Phoenix was $1,630,000 in Q4 2023.
Aazami said more luxury homes are expected to hit the market and based on construction numbers, inventory could double for this sector. That’s a bonus for buyers in his area.
“Certainly, in a buyers’ market, our seasoned agents can distinguish between quality materials and workmanship and can guide you to the right opportunity and value,” Aazami said.
Aazami confirmed that cash is king there. Even unappealing homes with bad floor plans and homes priced above market value get cash offers, he said.
Nationally, 46.5% of luxury purchases were paid for in cash in Q4 2023, up from 40% a year earlier, according to Redfin.
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