Luxury homes in the US got pricier in the second quarter of this year, marking a modest return to the trend of increasing luxury home prices.
Redfin reported that the average price of luxury homes nationwide jumped 1% to $1.64 million in Q2 2019, bouncing back from the previous quarter’s 1.7% year-over-year decline.
"Luxury home sales have been relatively soft since early 2018 when the tax code overhaul made it so that people with big mortgages and those living in high-tax states and counties couldn't deduct as much from their annual tax bill," said Redfin Chief Economist Daryl Fairweather. "But wealthy Americans who would otherwise be considering a multi-million dollar home purchase may now be a bit spooked that the economic expansion they've been enjoying for the past decade could soon be nearing its end."
A home is considered as luxury if it’s among the 5% most expensive homes sold in the quarter, according to Redfin. The other 95% of the market experienced a higher annual increase of 3.2% to an average home price of $322,000 in the first quarter. This represents the seventh consecutive year of annual price hikes.
Sales of homes priced at or above $1.5 million dropped 4.6% annually over the past quarter. The dip was the third quarter in a row of sinking sales. Meanwhile, sales of homes priced under $1.5 million fell 6.7% year over year.
Supply of homes priced at or above $1.5 million continued to grow, up 18.7%. Supply of homes priced under $1.5 million, on the other hand, only climbed 2.1% annually.
"Business owners and people with large investments are paying close attention to the escalating trade war and other uncertainties in global markets," Fairweather said. "Despite the fact that the economy at home is continuing to grow, these and other signs that a recession could be looming are likely causing well-heeled homebuyers to feel extra cautious about a big purchase or investment. The Fed's rate cut is unlikely to have a big impact on the course of the economy and especially on the luxury housing market, where buyers are the least rate-sensitive. As a result, I expect to see continued caution in the high-end market as the future of the economy becomes more clear to those whose wealth is most closely tied to it."
Compared to last year, the typical luxury homes sold slightly faster in the second quarter, going under contract within 71 days in 2018 to 68 days in 2019. The average non-luxury home that sold under the same period went under contract within 49 days, down from 56 days a year ago.
Las Vegas pushed Florida from the top city with the biggest increases in luxury home prices. Luxury home prices in Paradise, Nevada skyrocketed 46.8% (or an average $1,079,000) year over year and 16.4% ($1,223,000) in Henderson, Nevada. Metros in Florida, including Fort Lauderdale, St. Petersburg, and Tampa, also saw the largest increases in the second quarter.
On the other hand, Seattle, Washington, D.C., Honolulu, and San Jose experienced a downswing in luxury home prices. In Seattle, home prices moved down 14.4% to approximately $2.2 million, while prices in San Jose slid 8.2% to $2.37 million.
"Part of the reason prices for luxury homes in Seattle are dropping this year is because it experienced a bigger market boom in all price ranges (especially the high-end market) in the last six years than most other cities, with Amazon and other tech firms bringing folks into the area quickly with high salaries. A bigger rise tends to lead to a bigger fall, and luxury is usually one of the first markets to feel the crunch," said local Redfin agent Tamar Baber. "Now that the market has cooled down a bit, high-end buyers are scrutinizing their home purchases very carefully. Some of them feel the country could be headed toward a recession and aren't willing to spend $2 million, $3 million or $4 million on a home right now unless it meets their exact specifications. Luxury sellers are slowly adjusting their pricing accordingly."