Record Surge: U.S. Luxury Home Prices Soar 9% in 2023

Surge in Cash Transactions as U.S. Luxury Home Prices Hit Record High

New data from Redfin reveals that the average price of a luxury home in the United States reached a historic peak of $1.17 million in the fourth quarter, marking an impressive 8.8% increase compared to the previous year.

In contrast, prices for non-luxury homes rose at a more modest pace of 4.6% year over year, reaching a record average of $340,000.

The analysis, which categorized all residential properties in the U.S. into tiers based on Redfin Estimates of their market values as of January 2024, defines luxury homes as those estimated to be within the top 5% of their respective metro areas based on market value.

Non-luxury homes are identified as those estimated to fall within the 35th to 65th percentile based on market value.

The substantial surge in luxury home prices, coupled with a notable increase in luxury new listings and improved sales figures, indicates heightened activity among affluent homebuyers and sellers.

Record High Cash Purchases Drive Luxury Real Estate Market

In the fourth quarter, a significant surge in all-cash transactions for luxury homes has bolstered the strength of the high-end housing sector. A remarkable 46.5% of luxury home purchases during this period were made in cash, marking a notable increase from the 40% reported a year prior.

The notable escalation in luxury home prices, outpacing the growth rate of non-luxury properties, can be largely attributed to the substantial number of affluent buyers who have the capacity to purchase homes outright with cash.

This trend has effectively mitigated the impact of current elevated mortgage rates, rendering them less influential in the luxury market. Conversely, higher mortgage rates tend to exert a more pronounced cooling effect on the broader housing market, resulting in increased interest payments and tempering price appreciation.

Heather Mahmood-Corley, a Redfin Premier agent based in Phoenix, provides insights into the robust activity observed in the luxury segment. She notes that many affluent buyers are seizing the opportunity to swiftly acquire high-end properties, particularly in sought-after areas such as luxurious Scottsdale or centrally located Tempe, which are favored by West Coast transplants.

Mahmood-Corley recounts a recent transaction where a client purchased a home in Tempe, flipped it, and achieved a staggering sale price of $1.4 million within a mere two days.

Furthermore, the scarcity of inventory has exerted upward pressure on luxury home prices. Despite witnessing a notable increase in luxury home listings compared to the previous year, inventory levels remain substantially below those seen before the onset of the pandemic.

This scarcity has resulted in heightened competition among affluent buyers vying for a limited number of homes, further fueling the appreciation in luxury property values.

Surge in New Luxury Home Listings Reaches Pre-Pandemic Levels

The fourth quarter witnessed a remarkable surge in new listings of luxury homes, marking a substantial increase of 19.7% compared to the previous year.

This surge, the most significant in over two years, propelled the total number of new luxury listings in the U.S. to nearly 53,000, a figure comparable to the levels observed in the fourth quarters of 2018 and 2019, just before the onset of the pandemic.

In contrast, new listings of non-luxury homes experienced a marginal decline of approximately 3% year over year, albeit the smallest decrease seen in the past eighteen months.

Several factors contributed to the substantial increase in luxury new listings:

1. High-end sellers capitalized on the opportunity to list their properties amidst elevated prices, aiming to capitalize on favorable market conditions.
2. Affluent buyers, less constrained by the mortgage-rate lock-in effect compared to middle-income buyers, continued to drive demand in the luxury segment.
3. New listings had significant room for expansion, given that they had reached their lowest levels in a decade by the end of 2022.

Simultaneously, the total inventory of luxury homes for sale experienced a notable increase, rising by 13% year over year. Conversely, total non-luxury inventory witnessed a decline of 9.7%.

Despite the substantial year-over-year increase, the overall inventory of luxury homes remains below typical fourth-quarter levels. However, it is anticipated that the total supply of luxury homes will continue to rise throughout 2024.

This projection is supported by the significant uptick in new listings observed, coupled with the likelihood of more high-end homeowners entering the market to capitalize on the opportunity to command record-high prices.

Sheharyar Bokhari, Senior Economist at Redfin, commented on the implications of this trend, stating that the increase in luxury listings is expected to moderate price growth over the course of the year.

This development is viewed positively for the high-end market, as it will provide sellers with fair prices, offer buyers a wider selection of options, and likely stimulate an increase in sales activity.

Luxury Home Sales Experience Marginal 2% Decline Compared to Last Year

In the fourth quarter, sales of luxury homes exhibited a modest decline of 1.7% year over year, marking the smallest reduction since mid-2021. This decline contrasts with a 8.1% decrease observed in non-luxury home sales, albeit still the smallest decline since the beginning of 2022—indicating that luxury property transactions were relatively more resilient during this period.

Here are the highlights of luxury real estate activity at the metro level in the fourth quarter of 2023:

Median Sale Prices:

• The median sale price of luxury homes experienced the most substantial increases in Newark, NJ (11.6%), New Brunswick, NJ (10.9%), and Orlando (10.8%).
• Conversely, prices declined in only eight metros, with the most notable decreases observed in Austin, TX (-8.6%), Las Vegas (-6.1%), and Jacksonville, FL (-2.3%).

New Listings:

• New listings of luxury homes saw the most significant rises in Phoenix (42.3%), Tampa, FL (41.6%), and New York (31.6%).
• However, new listings declined notably in Milwaukee (-16.7%), Baltimore, MD (-10.2%), and Chicago (-4.4%).

Active Listings:

• The total number of luxury homes available for sale witnessed the most substantial increases in Austin, TX (44.5%), San Antonio, TX (33.1%), and Tampa, FL (30.4%).
• Conversely, active listings decreased notably in Detroit, MI (-14.7%), Oakland, CA (-12.6%), and Newark, NJ (-11.9%).

Home Sales:

• Luxury home sales experienced the most significant increases in Las Vegas (33.9%), Tampa, FL (24.3%), and Pittsburgh, PA (21.5%).
• On the other hand, sales declined notably in New York (-21%), Charlotte, NC (-21%), and Kansas City, MO (-20.8%).

Despite the marginal decline in luxury home sales compared to the previous year, the luxury real estate market displayed resilience across various metro areas, with notable increases in median sale prices and new listings observed in several regions.

Top 10 Priciest U.S. Home Sales: Q4 2023

1. Indian Creek Village, Miami, FL: $79 million
2. New York, NY: $75 million
3. New York, NY: $65.6 million
4. Glenwood Springs, Aspen, CO: $60 million
5. New York, NY: $47 million
6. Glenwood Springs, Aspen, CO: $42.3 million
7. Atherton, San Francisco, CA: $40 million
8. Fort Lauderdale, FL: $40 million
9. Miami Beach, Miami, FL: $35.4 million
10. Los Angeles, CA: $34.6 million