Well-to-do buyers are avoiding high interest rates with cash purchases, pushing luxury home prices up even more than regular houses.
The median luxury home price rose 9% YOY in Q3 2023 to $1.1 million, the highest third quarter on record, according to a new analysis from Redfin. It’s also three times faster than non-luxury prices, which were up 3.3% to $340,000 in the same period.
Luxury sales seem to have followed a similar pattern as regular homes, with sales and listings falling last year before reversing course in 2023.
Now, limited inventory has increased competition and pushed prices higher.
But while mid-tier buyers suffer high rates, high-end buyers bypass them with cash, avoiding mortgages altogether. More than two in five (42.5%) luxury homes that sold in the third quarter were purchased in cash, up from 34.6% a year earlier, while just 28% of non-luxury homes were cash purchases.
Those who choose to take on a mortgage rather than pay cash have more options than the average buyer as well.
“Wealthy homebuyers have more tools to weather the storm of high mortgage rates,” Redfin Senior Vice President of Real Estate Operations Jason Aleem said.
“Many of them can afford to pay in cash, meaning they’re escaping high mortgage rates altogether. Others are choosing to take on a higher rate and refinance later—an expensive option that isn’t feasible for a lot of lower-income consumers. Affluent Americans are still spending big, in large part because of pandemic savings and resilient housing and stock values.”
But luxury buyers aren’t immune to market forces in the long run. Soaring prices and “higher for longer” rates will eventually force America’s wealthiest to the sidelines as well. Even small rate changes can lead to payments that are thousands of dollars more a month for super high-value homes.
“High costs, along with the uptick in the number of high-end homes for sale, could cause luxury price growth to cool,” said Redfin Chief Economist Daryl Fairweather.
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