The luxury housing market is learning that all bubbles eventually burst.
While sales in the high-end sector hit a peak during the early pandemic, they’ve now plummeted, The Wall Street Journal reported on Tuesday. Across the United States, sales of luxury homes—considered to be the top 5 percent of properties based on estimated market value—dropped more than 24 percent in the three months ending June 30, compared with the same period in 2022, according to a new study from Redfin. That’s a bigger dip than non-luxury homes experienced—just over 19 percent in the same time frame.
“The luxury market is definitely hurting in terms of transactions,” Daryl Fairweather, the chief economist at Redfin, told the WSJ. “Even when you compare it to the rest of the market, it’s looking like luxury has really cooled off.”
The downward spiral is due to a few different factors: Buyers are less eager to snap up properties thanks to inflation and the vicissitudes of the stock market. Meanwhile, homeowners don’t want to give up the low mortgage rates they secured a few years ago, or potential sellers are worried about not being able to find a new property within their budget. That combo—of fewer buyers and sellers—has left the luxury market struggling.
Several cities that were hot in 2020 and 2021 have cooled down significantly. Miami saw the largest drop-off, with a year-over-year decline of more than 40 percent for the three months ending June 30, according to the Redfin report. Both New York City and Los Angeles saw a 36 percent reduction in luxury transactions, while Chicago experienced a 34 percent plunge.
“Everything is muddy and offers are complicated,” the L.A. real-estate agent Marcy Roth told The Wall Street Journal. “There aren’t a lot of quick, clean deals.”
Some sellers have found a way to manipulate the market, though: lowering prices. While many owners are reluctant to sell their home for less than the amount they have in mind, those who have assessed their options and reduced the price tag are seeing sales. In San Francisco, for example, the median sales price for luxury homes has dropped almost 13 percent. As such, transactions are down just 4 percent—a blip compared with the declines New York and Miami have seen.
So while it may hurt, settling for a little bit less may be the only way to get a multimillion-dollar manse off your hands in this environment.