Luxury home sales in the U.S. dove by 28.1 percent year over year during the three months ending Aug. 31, 2022 — eclipsing the 23.2 percent drop in luxury sales at the height of the pandemic — Redfin data shows.

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Luxury home sales in the U.S. dove by 28.1 percent year over year during the three months ending Aug. 31, 2022, according to a report released Thursday by Redfin.

That decline is the largest to take place at least since Redfin started collecting this data in 2012, surpassing even the 23.2 percent drop in luxury sales to take place at the height of the COVID pandemic when the market slowed to a near halt.

Non-luxury home sales also saw their steepest decline on record, falling 19.5 percent during the same period. The slowdown was also slightly greater than the 19 percent decline in home sales to take place during pandemic shutdowns, specifically, during the three months ending June 30, 2020.

Redfin defines luxury properties as homes estimated to be in the top 5 percent of a market’s home price, based on market value, and non-luxury homes include properties estimated to be in the 35th to 65th percentile based on market value.

Given that luxury buyers are often cash buyers, higher mortgage rates don’t often scare them off. Still, some luxury buyers do take out mortgages and incorporate them into their investment strategy. And given rates’ high volatility in recent months, inflation and a topsy-turvy stock market and economic uncertainty, even luxury buyers seem to be questioning whether or not now is a wise time to buy.

Daryl Fairweather

Daryl Fairweather | Redfin

“High-end-house hunters are getting sticker shock when they see the impact of rising mortgage rates on paper,” Redfin Chief Economist Daryl Fairweather said in a statement.

“For a luxury buyer, a higher interest rate can equate to a monthly housing bill that’s thousands of dollars more expensive. Someone who was in the market for a $1.5 million home last year may now have a maximum budget of $800,000 thanks to higher mortgage rates. Luxury goods are often the first thing to get cut when uncertain times force people to reexamine their finances.”

Some of the nation’s priciest markets are seeing the largest declines in luxury sales, like large cities in California. Oakland led the pack with the largest decline in luxury home sales, which tanked 63.9 percent year over year during the three months ending Aug. 31. Both San Jose and San Diego also saw a drop in luxury sales of more than 55 percent.

Those three markets — Oakland, San Jose and San Diego — have all also seen very steep declines in luxury listings as buyer demand has waned.

Anthony Andaya | Coldwell Banker

Anthony Andaya with Coldwell Banker in San Diego pointed to the market’s normalization as the primary cause for the significant slowdown in sales, and said it might be a good thing, ultimately.

“The higher-end market is definitely taking a little bit more of a hit with regards to their interest rates going up and affordability being marginally tougher,” Andaya told Inman. “So I think we’re just kind of seeing some leveling out. Maybe what we’re noticing is less of the over-bid and more normalization of prices … I think we’ll see that trending into 2023. We might see a slight dip at the end of the day, but I think just more normalization — and it’ll be nice in San Diego because you might have a chance to get your offer accepted and going that route, rather than 30 offers in 30 seconds.”

Luxury-home price growth has also slowed significantly, with the median sale price of luxury properties increasing just 10.5 percent year over year to $1.1 million during this period, compared to 20.3 percent the year before and compared to a high of 27.8 percent during the three months ending June 30, 2021.

Meanwhile, non-luxury home prices have been growing at a quicker rate — the non-luxury median home price rose 15.5 percent year over year to $335,000 during this period, down from 17.2 percent the year before and down from a record gain of 19.7 percent during the three months ending March 31, 2022.

In Miami, where luxury sales were down 55.5 percent year over year, Angel Nicolas of Compass said that sellers price expectations while the market has been cooling have seriously hindered movement in the market.

Angel Nicolas | Compass

“The demand is still very, very strong, specifically in Miami,” Nicolas said. “The issue is that if your neighbor sold for $1,000 per square foot last year, the next door neighbor now is trying to sell for $1,500 per square foot. Because when this whole frenzy started, someone was selling for $500 per square foot, and then the next one, they will sell for $700, and then the next one was for $900. So the sellers think that this is still continuing — and it’s not.”

“If they were to list the home very similar to, or slightly below, the same price-per-square-foot as their neighbor, then they would actually do really well on the property,” he continued.

Agents need to be very careful with their pricing strategy today, Nicolas added, and should be careful not to become yes-men to sellers.

The good news is that with sales declining, luxury inventory has had a chance to replenish a bit. The number of luxury listings fell just 1.9 percent year over year during the three months ending Aug. 31 to about 169,000. By contrast, the previous year, listings declined 25 percent year over year. Luxury listings are also up 39.2 percent from a record low of 121,000 seen during the three months ending Feb. 28.

On the non-luxury side, inventory fell 3.5 percent year over year, marking the first time in about two years that luxury inventory fell at a slower rate than non-luxury inventory.

Despite the drop in luxury listings in pricier coastal cities like Oakland and San Diego, nationally, luxury listings are on the rise. New luxury listings were up 1.2 percent year over year during the three months ending Aug. 31, while non-luxury listings were down 5.9 percent year over year.

Barbara Estela | One Sotheby’s International Realty

For luxury sellers who are starting to feel anxious about selling a home now, Barbara Estela of One Sotheby’s International Realty in Miami said now’s the time that luxury agents really have to step up and show their worth.

“It becomes a buyer’s market, it becomes a seller’s market … Now is when it really matters who you work with. Not everybody can just sell real estate,” Estela told Inman. “Any luxury agent you speak to is going to tell you the same thing — now is when you really have to show off your marketing skills.”

Get Inman’s Luxury Lens Newsletter delivered right to your inbox. A weekly roundup of all the biggest news in the world of high-end real estate delivered every Friday. Click here to subscribe.

Email Lillian Dickerson

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