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In April, 17.8 percent fewer U.S. luxury homes—defined as the most expensive 5 percent of houses in a given market area—were sold during the three months ending on 30 April, compared to the same period in 2021, the online brokerage Redfin.com reported, the largest monthly decline since the onset of the COVID War in March 2020.
The drop “sent shock waves through the housing market,” Redfin said.
In contrast, sale of non-luxury homes edged down only 5.4 percent over the same time.
Luxury buyers are facing rising interest rates, record-high home prices, a slumping stock market, and inflation at a 40-year high.
The interest rate on a 30-year, fixed-rate mortgage has increased almost 40 percent since the beginning of the year, potentially adding thousands of dollars to the monthly payment on a high-priced house.
Rates began the year averaging 3.11 percent and climbed to 5.78 percent on 13 June, Bankrate.com reported.
The rate on a so-called jumbo loan, which most luxury buyers use, was 3.23 percent at the end of 2021 and 5.79 percent on 13 June.
The luxury slump “is also a reflection of the market for high-end homes coming down to Earth after a nearly 80-percent surge a year ago,” Redfin noted.
“The pool of people qualified to purchase luxury properties is shrinking because the stock market is falling and interest rates are rising,” Florida Redfin agent Elena Fleck said in the company’s statement accompanying the news.
“The good news for buyers is that the market is becoming more balanced and competition is easing up.”
“Of course,” she added, “that doesn’t help the scores of Americans who have been priced out altogether.”
The average selling price of a luxury home during the three-month period was $1.15 million, 19.8 percent more than a year before, about the same rate of increase as for non-luxury homes, Redfin said.
The inventory of luxury homes for sale decreased 12.4 percent over the period, compared with the record plunge of 27 percent in the summer of 2021, when demand for high-end houses spiked.
TREND FORECAST: For more than a year, we have warned that when the U.S. Federal Reserve raises its key interest rate to or above 1.5 percent, home sales would fall dramatically from their feverish COVID-era pace, which was fueled by the Fed’s cheap money. The plunge already has begun.
TREND FORECAST: As we said in “Home Prices Set Another Record While Sales Fall” (26 Apr 2022), for the foreseeable future, home prices will remain high enough to close out large segments of the U.S. population, especially now that mortgage interest rates are on the rise.
We have documented this trend in articles such as “Median U.S. Home Price Sets Another Record” (29 Jun 2021) and “Home Prices Up, Incomes Down” (16 Nov 2021).
Also, private equity firms have pervaded the market for private homes, buying them individually or, often, in large batches, to turn into rental properties, as we have reported in “Invitation Homes to Buy $1 Billion Worth of Houses This Year” (1 Jun 2021), “Blackstone Extend Reach Into Housing Market” (29 Jun 2021), and “Private Equity Partners Target $5 Billion in Rental Houses” (27 Jul 2021), among other articles.
The combination of high home prices, rising interest rates, premium rents, and a slowing economy will extend a trend we have been warning about for more than a year: younger buyers will have an increasingly difficult time saving cash for a down payment on a house and an equally difficult time qualifying for an affordable mortgage.
In America, now the “Land of Little Opportunity” with its middle class shrinking and median household income declining at record rates, Americans will spend their lives as renters, denied the satisfaction—and potential financial rewards—of owning a home of their own.