Luxury Real Estate Loses Steam
- New listings and pending sales are both down, as luxury buyers and sellers cope with economic uncertainty.
- The typical luxury home is worth about $1.8 million nationwide, ranging from just over $835,000 in Buffalo to nearly $6 million in San Jose.
- Despite the slowdown, luxury home values are up 2.7% from a year ago — double that of the larger housing market.
The luxury housing market tapped the brakes in April. Financial volatility led both buyers and sellers at the high end to hit pause.
The typical luxury home — defined as the top 5% most valuable homes in each region — is now worth about $1.8 million nationwide, and more than double that in six major metros: San Jose, Los Angeles, San Francisco, Miami, San Diego and New York. These homes typically encompass nearly 3,500 square feet of living space and are often situated on more than two-thirds of an acre. Despite the recent slowdown in total market activity, luxury home values have increased 2.7% over the past year, outpacing the 1.4% growth seen in the broader market.
Affordability challenges — including high mortgage rates, elevated home prices and ongoing macroeconomic uncertainty — have made many people hesitant to enter the market. While luxury buyers often have substantial equity and cash reserves, they still are proceeding with caution. However, the limited supply of high-end homes and their desirable features continue to keep home values ticking higher, even in a more subdued market.
Early spring brought a burst of activity: From February to March, the number of luxury homes that went under contract went up by more than 30%. But in April, that momentum faded as consumer confidence and investment portfolios dipped. In April, 12% fewer luxury homes went under contract compared to March — a dramatic drop since sales usually pick up in the spring. By comparison, last April, 10% more luxury homes went under contract from the previous month. Sellers also pulled back, with new luxury listings down 5% from March and down 3.4% year over year.
Among the 50 largest U.S. metro areas, typical luxury home values range from just over $835,000 in Buffalo to nearly $6 million in San Jose. California dominates the top of the luxury market, with San Jose ($5.9 million), Los Angeles ($5.1 million) and San Francisco ($4.8 million) ranking as the three most expensive metros for luxury homes.
The hottest luxury markets, where home value growth has surged the most annually, include Cincinnati (7.3%), Columbus (6.8%), Chicago (6.3%), Cleveland (6.1%) and Las Vegas (6.1%). Conversely, Austin (-2.1%), Tampa (-1.7%) and Miami (-0.5%) are the only major markets where luxury home values have declined over the past year. As for where homes are flying off the market, Ohio is front and center. In Cincinnati and Columbus, luxury homes are typically going under contract after just five days.
Nationwide, the typical luxury home is valued at about five times the price of a mid-market home. In 2020, luxury homes were worth nearly 5.5 times as much. This indicates that the price gap between luxury and typical homes has narrowed over time.
By far the biggest gap is in Miami, where the typical luxury home value ($4.6 million) is 9.4 times higher than the typical mid-market home ($484,341). The markets with the second and third-largest gaps are the New York City metro area (5.6 times) and Austin (5.5 times). Hartford and Portland have the smallest gaps between the typical luxury and mid-market homes, with the typical luxury home just under three times more expensive than the typical mid-market home in each.