LOS ANGELES — Well-heeled home shoppers are increasingly paying cash, helping turbo-charge price gains for the most expensive U.S. homes.
The median sale price of luxury homes, or those valued in the top 5% of the market nationally, hit an all-time high $1.23 million in the first quarter, an increase of 8.7% from the same period last year, according to an analysis by Redfin.
By comparison, the median sale price of non-luxury homes, or those in the middle-third of the market based on their estimated value, rose 4.6% from a year ago to $345,000, according to the report. Redfin didn’t factor in price trends for homes with an estimated value in the bottom third of the market.
Rising mortgage rates have discouraged many would-be homebuyers and kept the U.S. housing market mired in a slump for most of the past couple of years.
Despite easing from a 23-year high of 7.79% in October, according to mortgage buyer Freddie Mac, the average rate on a 30-year mortgage has been hovering around 7% this year. That’s still more than double the average rate’s pandemic-era lows.
When mortgage rates rise, they can add hundreds of dollars a month in costs for borrowers, limiting how much they can afford at a time when the U.S. housing market remains constrained by relatively few homes for sale and rising home prices.
While elevated mortgage rates have limited the pool of prospective homebuyers in the broader housing market, demand for high-end homes has held up better than for middle-of-the-road properties.
Sales of luxury homes rose 2.1% in the first quarter versus a year earlier, while sales of properties in the middle-third of the market fell 4.2%, according to the report.
One reason for the diverging sales data is that wealthy home shoppers are more likely to have the financial flexibility to bypass financing hurdles by paying in cash. The trend is helping accelerate the growth in home sale prices among the most high-end homes at a faster clip than less expensive properties.
Consider, some 46.8% of luxury homes were bought entirely with cash in the three months ended February 29, according to Redfin. That’s the highest share of all-cash luxury home purchases in at least a decade and it’s up from 44.1% from a year earlier.
Prices for the most expensive homes have kept climbing even as the inventory of high-end properties has increased sharply this year. All told, the number of luxury homes on the market jumped 12.6% in the first quarter compared to a year earlier, while new listings surged nearly 19%, Redfin said.
In contrast, the inventory of homes in the middle-third of the market fell 2.9% in the January-March period from a year earlier.
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