Want to get that mansion off your back? Now is not a good time.
Luxury home sales in the United States fell 38.1% year-on-year in the three-month period ending Nov. 30. market report published on wednesday by Redfin. The data goes back to 2012 and is the biggest decline in the last decade — Redfin notes that it surpassed a record 31.4% drop in sales for non-luxury homes over the same period.
(For Redfin, luxury homes are estimated to be in the top 5% by market value. Non-luxury is defined as homes in the 35th to 65th percentile by market value.)
Why? All of those big points for 2022 – including inflation, rising interest rates to combat inflation and fears of a recession – turned both markets bearish. However, Redfin notes, the luxury end of the spectrum saw a sharp decline for reasons including luxury items being trimmed from budgets at a time of economic stress — and would-be wealthy buyers holding funds in the stock market, which is losing value.
What’s more, luxury property is often used as an investment – and with home values and rents set to decline in 2023, “investment prospects are dim,” the report said.
The fall in sales was accompanied by an increase in available assets – with reports linking luxury-home supply rising the most since 2016 during this time period. The number of luxury homes for sale climbed 5.2% year-on-year to nearly 163,000. (The supply of non-luxury homes fell 5.7% to 552,000.)
The brunt of this was felt very close to home. Long Island’s Nassau County — home to affluent communities like Great Neck — saw a 65.6% year-over-year drop in luxury home sales in the three-month period ending last month, “the most populous U.S. metropolitan area.” Big drop,” according to the report.
Next up were four regions in California. San Diego saw sales decline by 60.4% and San Jose by 58.7%. Meanwhile, Riverside and Anaheim saw declines of 55.6% and 55.5%, respectively.
“These markets are prohibitively expensive for most buyers even when the economy is booming, so it is not surprising that more buyers would back out during a downturn,” the report said.
Redfin says there are some early signs that aggregate demand from homebuyers is starting to come back at a time of declining interest rates, which could moderate the decline in luxury sales.