The Luxury Home Market Posts Its Biggest Decline in a Decade. ‘It’s Like Crickets.’
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The Luxury Home Market Posts Its Biggest Decline in a Decade. ‘It’s Like Crickets.’

After a pandemic-induced bull run, the high-end market has finally faltered thanks to inflation, recession fears and rising interest rates

Fri, Sep 23, 2022 8:18amGrey Clock 6 min

When Nancy Lam upgraded in January to a home closer to her child’s school in the San Francisco Bay Area, she thought she had plenty of time to list her old house, a five-bedroom modern home in the sought-after suburb of Lafayette.

After all, the pandemic had sent the luxury housing market soaring, and homes across the country were seeing aggressive bidding wars and selling for sky-high prices. Ms. Lam, a business professor, and her husband, who works in healthcare and declined to be named, took their time sprucing up the house in a bid to get the best possible price for the home, which they had bought for $1.67 million in 2014.

But after listing it for $3.95 million in May, they realised they may have miscalculated. After weeks on the market, the house hadn’t been scooped up like they expected. There were no reasonable offers, and no bidding wars. Now, four months and two significant price cuts later, the property is still lingering on the market, asking $3.49 million.

“It’s crazy,” she said. “We never expected for this to still be on the market. It really caught us by surprise.”

Experts say stories like Ms. Lam’s are becoming increasingly common as the luxury housing market cools following its pandemic-induced bull run. A new report by real-estate brokerage Redfin shows that in the three months ending Aug. 31, sales of luxury U.S. homes dropped 28.1%, from the same period last year. That marks the biggest decline since at least 2012, when Redfin’s records began, and eclipses even the 23.2% decrease recorded during the onslaught of the pandemic in 2020, the report said.

Sales of non luxury homes also fell during the same period, but that drop—19.5%– was smaller than the decline in the luxury market, which is defined as the top 5% of homes based on estimated market value, according to Redfin.

“Six months ago, people were buying homes over-ask and with no appraisal,” said Ms. Lam’s real-estate agent, Herman Chan of Golden Gate Sotheby’s International Realty. “They didn’t even bat an eyelash. Now, it’s like crickets.”

High-end California markets have seen some of the steepest declines in sales volume, Redfin’s data shows. The number of home sales plunged by close to 64% in Oakland, Calif., while San Jose and San Diego also posted decreases of more than 55%. The number of home sales fell 44.3% in Los Angeles, 55.5% in Miami and 11.8% in New York.

Major reasons for the slowdown include recession fears and rising interest rates, which have priced some buyers out of the market and spooked others, according to Redfin Chief Economist Daryl Fairweather. Buyers are getting “sticker shock” when they see the impact of rising rates, which is causing them to re-examine their finances and their buying power, she said. And while super wealthy buyers often aren’t directly impacted by interest rates—many purchase in cash—Ms. Fairweather said they are still paying attention to wider economic indicators.

“We’re dealing with inflation, and inflation cuts into profits,” she said. “Rich people definitely care about how much profits the companies they are invested in are making. That affects stock prices, it affects treasury yields.”

As for purchasing real estate in all cash, Treasurys seem like a better bet than real estate right now, Ms. Fairweather said. “No investor wants to put their money into an asset that is going down in value,” she said.

Mr. Chan said he believes the slowdown in activity is more severe in the luxury market because high-end homeowners have a greater degree of discretion about when to sell and at what price. Often, sellers face no financial pressure to move, he said; they can just wait it out.

Scott Lennard, an agent with Compass in the Seattle, Wash., area, who is listing a $12.5 million estate on Lake Washington, said his client is willing to hold out for the right price and is in no rush to sell, though the property has been on the market for about eight months.

While the volume of luxury sales across the country has dipped dramatically, prices are still holding firm, though their growth has slowed. The median sale price of a U.S. luxury home grew 10.5% to $1.1 million during the three months ending Aug. 31, according to Redfin, compared with a 20.3% increase during the same period of last year. Ms. Fairweather said she expects prices to decline throughout the winter.

Meanwhile, many buyers no longer feel urgency to move quickly, because houses are sitting on the market longer, Mr. Chan said. Some of his clients also dropped their budgets amid stock market volatility this summer, he said. One couple was originally shopping for a home in the $5 million range, but reduced their budget to around $4 million after some of their stocks took a battering and interest rates rose, he said. “They basically lost their down payment buffer zone,” he said.

In Seattle, Mr. Lennard said he sees tech buyers pulling away from the market and taking a “wait and see” approach. The stock prices of Amazon and Microsoft, two major employers in the area, have fallen significantly in the last year, he said.

“That does certainly have an impact on the high-net worth buyers, because so much of their compensation is tied up in stock versus salary,” he said.

Other buyers have left the market during the pandemic frenzy. Frederick Oshay, 62, head of a packaging supplies company, said he planned to buy a home after relocating to the Montecito area from San Francisco’s East Bay last year. He and his agents, Adam McKaig and Melissa Borders of Douglas Elliman, looked at numerous homes priced between about $3.5 million and $7 million, and he even made offers on a few, but was outbid. Now, he said, he is taking a step back until prices start to come down.

“If something was really enticing, I’d probably jump back in,” he said, noting that he’s now seeing more inventory creep onto the market and a slower pace of sales. “But in terms of aggressively pursuing properties in what looks like a bubble, I would say it is time to exercise some buyer prudence.”

With the mid-2000s real estate crash in mind, Mr. Oshay said he is wary of buying at the top of the market.

“I know people who bought houses in 2007 and 2008 and then were like, ‘Oh my gosh, I wish I hadn’t bought.’” he said. “That trauma still has a little bit of impact. I don’t want to get crushed.”

The shortage of luxury inventory that helped drive prices at the start of the pandemic is easing, Redfin’s data shows. The number of luxury homes for sale nationwide is up 39.2% from a record low of roughly 121,000 earlier this year.

Many sellers, however, haven’t adjusted to the new realities of the market, Mr. Chan said. Some of his buyers have made lowball offers on homes, only to be met with significant resistance. “It’s a stalemate,” he said. “Sellers are living in the past, the buyers are living in the future.”

Shannon Hagan of Coldwell Banker Realty said she has also seen buyers starting to retreat from the luxury market in the greater San Diego area. Many are waiting for price cuts that so far haven’t materialised.

“I see a lot of people sitting on the fence, waiting to see who is going to say ‘uncle’ or who’s motivated,” she said. “And most of the people that own those properties are not motivated.”

One of her listings, a $14.95 million oceanfront mansion in Carlsbad, Calif., has been on the market since June. While the seller received one verbal offer, a sale never materialised. Still, she said, her client is wealthy and isn’t desperate to sell. “They don’t have to ever sell—they can carry these properties in perpetuity,” she said.

Ms. Fairweather attributes declines in pricey California markets partly to the popularity of remote work. “People used to live in places like San Francisco because of its great job market,” she said. “But now you can take that job basically anywhere in the country.”

Mr. Chan said he has a number of San Francisco clients who have looked to leave the city in part because of the prevalence of homelessness in some areas.

Ms. Fairweather said she doesn’t see the luxury market improving soon, thanks to persistent inflation and the likelihood of further interest-rate hikes. She said it is likely to remain in “a holding pattern” until the economy starts to improve.

That’s bad news for sellers like Ms. Lam. While she said she’s grateful to have found a new house, she noted that it’s difficult to carry two mortgages and two sets of property taxes and insurance. “We didn’t budget to be carrying two of everything for more than a couple of months,” she said.


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Ray White’s chief economist outlines her predictions for housing market trends in 2024

By Bronwyn Allen
Tue, Nov 28, 2023 2 min

Ray White’s chief economist, Nerida Conisbee says property price growth will continue next year and mortgage holders will need to “survive until 2025” amid expectations of higher interest rates for longer.

Ms Conisbee said strong population growth and a housing supply shortage combatted the impact of rising interest rates in 2023, leading to unusually strong price growth during a rate hiking cycle. The latest CoreLogic data shows home values have increased by more than 10 percent in the year to date in Sydney, Brisbane and Perth. Among the regional markets, price growth has been strongest in regional South Australia with 8.6 percent growth and regional Queensland at 6.9 percent growth.

“As interest rates head close to peak, it is expected that price growth will continue. At this point, housing supply remains extremely low and many people that would be new home buyers are being pushed into the established market,” Ms Conisbee said. “Big jumps in rents are pushing more first home buyers into the market and population growth is continuing to be strong.”

Ms Conisbee said interest rates will be higher for longer due to sticky inflation. “… we are unlikely to see a rate cut until late 2024 or early 2025. This means mortgage holders need to survive until 2025, paying far more on their home loans than they did two years ago.”

Buyers in coastal areas currently have a window of opportunity to take advantage of softer prices, Ms Conisbee said. “Look out for beach house bargains over summer but you need to move quick. In many beachside holiday destinations, we saw a sharp rise in properties for sale and a corresponding fall in prices. This was driven by many pandemic driven holiday home purchases coming back on to the market.”

3 key housing market trends for 2024

Here are three of Ms Conisbee’s predictions for the key housing market trends of 2024.

Luxury apartment market to soar

Ms Conisbee said the types of apartments being built have changed dramatically amid more people choosing to live in apartments longer-term and Australia’s ageing population downsizing. “Demand is increasing for much larger, higher quality, more expensive developments. This has resulted in the most expensive apartments in Australia seeing price increases more than double those of an average priced apartment. This year, fewer apartments being built, growing population and a desire to live in some of Australia’s most sought-after inner urban areas will lead to a boom in luxury apartment demand.”

Homes to become even greener

The rising costs of energy and the health impacts of heat are two new factors driving interest in green homes, Ms Conisbee said. “Having a greener home utilising solar and batteries makes it cheaper to run air conditioning, heaters and pool pumps. We are heading into a particularly hot summer and having homes that are difficult to cool down makes them far more dangerous for the elderly and very young.”

More people living alone

For some time now, long-term social changes such as delayed marriage and an ageing population have led to more people living alone. However, Ms Conisbee points out that the pandemic also showed that many people prefer to live alone for lifestyle reasons. “Shorter term, the pandemic has shown that given the chance, many people prefer to live alone with a record increase in single-person households during the time. This trend may influence housing preferences, with a potential rise in demand for smaller dwellings and properties catering to individuals rather than traditional family units.”


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