The average price of luxury homes in the United States fell in the first quarter of 2019, representing the first annual decline of luxury home prices in three years.
A Redfin report revealed that the average price of luxury homes across 1,000 cities (excluding New York City) fell by 1.6% to $1.55 million. Redfin defines a home as “luxury” if it was among the 5% most expensive homes sold in a quarter. By contrast, home prices in the other 95% of the market rose by 2.7% year-over-year to an average of $300,000 in the first quarter of 2019, following six straight years of increases.
Additionally, sales of homes priced at or above $2 million fell 16% year-over-year last quarter, marking the second consecutive quarter of declining sales and the biggest luxury sales drop since 2010.
Daryl Fairweather, chief economist at Redfin, pointed to tax reform measures that lowered the limits on deductions for mortgage interest as one of the main reasons for the decline in luxury home prices.
"Because homeowners can't deduct as much mortgage interest as they used to be able to, the calculus has changed when it comes to buying a home, especially an expensive one," said Fairweather. "Although the new mortgage rule applies to everyone in the country, high earners in states with high income taxes like California and Massachusetts saw their tax bills surge. Not only do the new rules make it less desirable to purchase a multi-million dollar home in high-tax states, it has also motivated some people – especially those with big incomes and big housing budgets – to consider moving to places like Florida, Washington or Nevada, which have no state income tax."
While luxury home prices are down nationwide, some cities experienced significant increases. For the fourth quarter in a row, West Palm Beach, Fla. saw the biggest increase in prices for luxury homes, up 89.6% year-over-year to more than $2.8 million last quarter. In St. Petersburg, Fla. prices were up 62.3% annually to nearly $2 million.
Some less popular luxury markets also experienced price increases. In Charleston, S.C., luxury home prices were up 42.3% annually to $2.3 million, and in Boise, Idaho, prices rose 17.2% annually to $1 million.
"Home prices in Boise are going up at all price points, especially in the luxury market," said Paul Reid, marketing manager at Redfin in Boise. "We are helping a lot of homebuyers move here from Seattle, Southern California, Denver, and the Bay Area. Many plan to work remotely, bringing their big-city salaries to Boise. These buyers can afford high-priced homes, and what they get for their money is substantially nicer than what they could buy for the same amount of money in the cities they're coming from."