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

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.

PARIS —Paris has long been a byword for luxurious living. The traditional components of the upscale home, from parquet floors to elaborate moldings, have their origins here. Yet settling down in just the right address in this low-rise, high-density city may be the greatest luxury of all.

Tradition reigns supreme in Paris real estate, where certain conditions seem set in stone—the western half of the city, on either side of the Seine, has long been more expensive than the east. But in the fashion world’s capital, parts of the housing market are also subject to shifting fads. In the trendy, hilly northeast, a roving cool factor can send prices in this year’s hip neighborhood rising, while last year’s might seem like a sudden bargain.

This week, with the opening of the Olympic Games and the eyes of the world turned toward Paris, The Wall Street Journal looks at the most expensive and desirable areas in the City of Light.

The Most Expensive Arrondissement: the 6th

Known for historic architecture, elegant apartment houses and bohemian street cred, the 6th Arrondissement is Paris’s answer to Manhattan’s West Village. Like its New York counterpart, the 6th’s starving-artist days are long behind it. But the charm that first wooed notable residents like Gertrude Stein and Jean-Paul Sartre is still largely intact, attracting high-minded tourists and deep-pocketed homeowners who can afford its once-edgy, now serene atmosphere.

Le Breton George V Notaires, a Paris notary with an international clientele, says the 6th consistently holds the title of most expensive arrondissement among Paris’s 20 administrative districts, and 2023 was no exception. Last year, average home prices reached $1,428 a square foot—almost 30% higher than the Paris average of $1,100 a square foot.

According to Meilleurs Agents, the Paris real estate appraisal company, the 6th is also home to three of the city’s five most expensive streets. Rue de Furstemberg, a secluded loop between Boulevard Saint-Germain and the Seine, comes in on top, with average prices of $2,454 a square foot as of March 2024.

For more than two decades, Kyle Branum, a 51-year-old attorney, and Kimberly Branum, a 60-year-old retired CEO, have been regular visitors to Paris, opting for apartment rentals and ultimately an ownership interest in an apartment in the city’s 7th Arrondissement, a sedate Left Bank district known for its discreet atmosphere and plutocratic residents.

“The 7th was the only place we stayed,” says Kimberly, “but we spent most of our time in the 6th.”

In 2022, inspired by the strength of the dollar, the Branums decided to fulfil a longstanding dream of buying in Paris. Working with Paris Property Group, they opted for a 1,465-square-foot, three-bedroom in a building dating to the 17th century on a side street in the 6th Arrondissement. They paid $2.7 million for the unit and then spent just over $1 million on the renovation, working with Franco-American visual artist Monte Laster, who also does interiors.

The couple, who live in Santa Barbara, Calif., plan to spend about three months a year in Paris, hosting children and grandchildren, and cooking after forays to local food markets. Their new kitchen, which includes a French stove from luxury appliance brand Lacanche, is Kimberly’s favourite room, she says.

Another American, investor Ashley Maddox, 49, is also considering relocating.

In 2012, the longtime Paris resident bought a dingy, overstuffed 1,765-square-foot apartment in the 6th and started from scratch. She paid $2.5 million and undertook a gut renovation and building improvements for about $800,000. A centrepiece of the home now is the one-time salon, which was turned into an open-plan kitchen and dining area where Maddox and her three children tend to hang out, American-style. Just outside her door are some of the city’s best-known bakeries and cheesemongers, and she is a short walk from the Jardin du Luxembourg, the Left Bank’s premier green space.

“A lot of the majesty of the city is accessible from here,” she says. “It’s so central, it’s bananas.” Now that two of her children are going away to school, she has listed the four-bedroom apartment with Varenne for $5 million.

The Most Expensive Neighbourhoods: Notre-Dame and Invalides

Garrow Kedigian is moving up in the world of Parisian real estate by heading south of the Seine.

During the pandemic, the Canada-born, New York-based interior designer reassessed his life, he says, and decided “I’m not going to wait any longer to have a pied-à-terre in Paris.”

He originally selected a 1,130-square-foot one-bedroom in the trendy 9th Arrondissement, an up-and-coming Right Bank district just below Montmartre. But he soon realised it was too small for his extended stays, not to mention hosting guests from out of town.

After paying about $1.6 million in 2022 and then investing about $55,000 in new decor, he put the unit up for sale in early 2024 and went house-shopping a second time. He ended up in the Invalides quarter of the 7th Arrondissement in the shadow of one Paris’s signature monuments, the golden-domed Hôtel des Invalides, which dates to the 17th century and is fronted by a grand esplanade.

His new neighbourhood vies for Paris’s most expensive with the Notre-Dame quarter in the 4th Arrondissement, centred on a few islands in the Seine behind its namesake cathedral. According to Le Breton, home prices in the Notre-Dame neighbourhood were $1,818 a square foot in 2023, followed by $1,568 a square foot in Invalides.

After breaking even on his Right Bank one-bedroom, Kedigian paid $2.4 million for his new 1,450-square-foot two-bedroom in a late 19th-century building. It has southern exposures, rounded living-room windows and “gorgeous floors,” he says. Kedigian, who bought the new flat through Junot Fine Properties/Knight Frank, plans to spend up to $435,000 on a renovation that will involve restoring the original 12-foot ceiling height in many of the rooms, as well as rescuing the ceilings’ elaborate stucco detailing. He expects to finish in 2025.

Over in the Notre-Dame neighbourhood, Belles demeures de France/Christie’s recently sold a 2,370-square-foot, four-bedroom home for close to the asking price of about $8.6 million, or about $3,630 a square foot. Listing agent Marie-Hélène Lundgreen says this places the unit near the very top of Paris luxury real estate, where prime homes typically sell between $2,530 and $4,040 a square foot.

The Most Expensive Suburb: Neuilly-sur-Seine

The Boulevard Périphérique, the 22-mile ring road that surrounds Paris and its 20 arrondissements, was once a line in the sand for Parisians, who regarded the French capital’s numerous suburbs as something to drive through on their way to and from vacation. The past few decades have seen waves of gentrification beyond the city’s borders, upgrading humble or industrial districts to the north and east into prime residential areas. And it has turned Neuilly-sur-Seine, just northwest of the city, into a luxury compound of first resort.

In 2023, Neuilly’s average home price of $1,092 a square foot made the leafy, stately community Paris’s most expensive suburb.

Longtime residents, Alain and Michèle Bigio, decided this year is the right time to list their 7,730-square-foot, four-bedroom townhouse on a gated Neuilly street.

The couple, now in their mid 70s, completed the home in 1990, two years after they purchased a small parcel of garden from the owners next door for an undisclosed amount. Having relocated from a white-marble château outside Paris, the couple echoed their previous home by using white- and cream-coloured stone in the new four-story build. The Bigios, who will relocate just back over the border in the 16th Arrondissement, have listed the property with Emile Garcin Propriétés for $14.7 million.

The couple raised two adult children here and undertook upgrades in their empty-nester years—most recently, an indoor pool in the basement and a new elevator.

The cool, pale interiors give way to dark and sardonic images in the former staff’s quarters in the basement where Alain works on his hobby—surreal and satirical paintings, whose risqué content means that his wife prefers they stay downstairs. “I’m not a painter,” he says. “But I paint.”

The Trendiest Arrondissement: the 9th

French interior designer Julie Hamon is theatre royalty. Her grandfather was playwright Jean Anouilh, a giant of 20th-century French literature, and her sister is actress Gwendoline Hamon. The 52-year-old, who divides her time between Paris and the U.K., still remembers when the city’s 9th Arrondissement, where she and her husband bought their 1,885-square-foot duplex in 2017, was a place to have fun rather than put down roots. Now, the 9th is the place to do both.

The 9th, a largely 19th-century district, is Paris at its most urban. But what it lacks in parks and other green spaces, it makes up with nightlife and a bustling street life. Among Paris’s gentrifying districts, which have been transformed since 2000 from near-slums to the brink of luxury, the 9th has emerged as the clear winner. According to Le Breton, average 2023 home prices here were $1,062 a square foot, while its nearest competitors for the cool crown, the 10th and the 11th, have yet to break $1,011 a square foot.

A co-principal in the Bobo Design Studio, Hamon—whose gut renovation includes a dramatic skylight, a home cinema and air conditioning—still seems surprised at how far her arrondissement has come. “The 9th used to be well known for all the theatres, nightclubs and strip clubs,” she says. “But it was never a place where you wanted to live—now it’s the place to be.”

With their youngest child about to go to college, she and her husband, 52-year-old entrepreneur Guillaume Clignet, decided to list their Paris home for $3.45 million and live in London full-time. Propriétés Parisiennes/Sotheby’s is handling the listing, which has just gone into contract after about six months on the market.

The 9th’s music venues were a draw for 44-year-old American musician and piano dealer, Ronen Segev, who divides his time between Miami and a 1,725-square-foot, two-bedroom in the lower reaches of the arrondissement. Aided by Paris Property Group, Segev purchased the apartment at auction during the pandemic, sight unseen, for $1.69 million. He spent $270,000 on a renovation, knocking down a wall to make a larger salon suitable for home concerts.

During the Olympics, Segev is renting out the space for about $22,850 a week to attendees of the Games. Otherwise, he prefers longer-term sublets to visiting musicians for $32,700 a month.

Most Exclusive Address: Avenue Junot

Hidden in the hilly expanses of the 18th Arrondissement lies a legendary street that, for those in the know, is the city’s most exclusive address. Avenue Junot, a bucolic tree-lined lane, is a fairy-tale version of the city, separate from the gritty bustle that surrounds it.

Homes here rarely come up for sale, and, when they do, they tend to be off-market, or sold before they can be listed. Martine Kuperfis—whose Paris-based Junot Group real-estate company is named for the street—says the most expensive units here are penthouses with views over the whole of the city.

In 2021, her agency sold a 3,230-square-foot triplex apartment, with a 1,400-square-foot terrace, for $8.5 million. At about $2,630 a square foot, that is three times the current average price in the whole of the 18th.

Among its current Junot listings is a 1930s 1,220-square-foot townhouse on the avenue’s cobblestone extension, with an asking price of $2.8 million.