Luxury Homes Sales Decline Most Since 2010 As Supply Soars

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Supply of luxury $2.0 million homes is up four consecutive quarters but sales are down 16%, the most since 2010.

In the luxury home market there is a mad dash for the exit.

However, buyers are holding their noses as Luxury Home Sales See Biggest Slump in Nearly a Decade.

Sales of homes listed at $2 million and above fell 16% in the first quarter, the sharpest annual decline since 2010, according to Redfin, a real estate brokerage.

This as the supply of those homes rose 14%, marking four straight quarters of annual increases in inventory.

The average price of a “luxury” home, which Redfin defines as the top 5% in each of the 1,000 cities it tracks, fell 1.6% to $1.55 million. Nonluxury homes saw their average price rise 2.7% annually to $300,000.

“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,” wrote Redfin’s chief economist, Daryl Fairweather, in a release.

​The shift in the luxury market has been more pronounced, therefore, in certain metropolitan markets. The average luxury sale price fell hardest in Boston (-22.4%), Newport Beach, California (-21.8%), and Miami (-19.3%). Miami’s drop may have been less about tax changes and more about overbuilding on the luxury end in recent years that has led to an oversupply of high-end homes for sale.

Just Starting

This trend is in its infancy.

Retiring or retired boomers whose kids have long ago moved out of the house are tired of maintaining these gargantuan homes.

Some want to move closer to their kids, others need to move closer to their kids for health reasons.

Another subset wants to be closer to their grand kids.

Perhaps now its just the way top end, over $2 million, but that will quickly trickle down.

A $2,000,000 home discounted to $1,600,000 or cheaper will affect the prices of all the homes currently in the $1,200,000 to $1,600,000.

I fully expect a cascade, just like we saw in 2007-2010, just not on the same scale or same impact.

Mike "Mish" Shedlock​

Comments (17)
No. 1-8
Bam_Man
Bam_Man

Changes in the tax code now limit the mortgage interest deduction and cap SALT tax deductibility at $10,000. I just spoke yesterday to someone whose 2018 Federal tax bill increased by $40,000, even though his income was flat year-over-year. Ouch!

SMF
SMF

Met some retired neighbors many years ago who wanted to sell their 4000 square foot home, and it was simply because for them it was too big. Nothing financial, just too much for them. That's when I realized that at a certain future point oversized homes would be a thing of the past.

FromBrussels
FromBrussels

Prices down??? OUTRAGEOUS this is! ! Time for the FED to buy some property !

TheLege
TheLege

Yup, this is gunna be a doozy: the middle class continues to be gutted and yet the supply of multi-million $ homes increases. One day we'll all be millionaires! Oh wait ...

Bam_Man
Bam_Man

Well, it is becoming clearer to me that much of residential real estate, as an asset class, is currently tremendously over-valued, given the recent changes in the tax code and the propensity of hopelessly bankrupt municipalities to endlessly increase property taxes. With interest rates already so low, capital gains on bonds (in the absence of negative interest rates, which given the USA's massive current account deficit will be very difficult to implement and maintain) will be slim to none. There seems to be no alternative to the stock market. So higher it probably goes, until the inevitable, gut-wrenching bust.

Menaquinone
Menaquinone

The USA does not have a monopoly on manufacturing as it did after WWII. American labor bid up its price beyond sustainable incomes. The jobs left. Americans are not smarter. Americans do not work harder. Americans do not have better technology. Americans must adapt to the world standard of living and the world price for labor. The housing market is for 900-1500 sq ft homes in safe desirable suburbs. These have not been built since the 1950s.

Sechel
Sechel

bigger homes mean higher carrying costs , so even if you think capital gains later on there's a negative cost of carry so in stead of being a source of wealth bigger homes can be a prelude to bankruptcy

Sechel
Sechel

this trend can play out in different ways. it can also mean selling the house and moving into a town house or condo or simply a smaller condo but not necessarily an inexpensive one.