Prices for luxury homes posted their first drop since 2012, suggesting the top of the market may be getting too rich even for the rich.
According to the Redfin real estate company, prices for luxury homes — defined as the top 5 percent of each of the 600-plus U.S. markets it measures — fell an average 2.2 percent in the third quarter compared to the same period last year.
That compares to an average price increase of 3.8 percent in the rest of the housing market. The report said wealthy buyers may be pulling back from real estate due to volatility in financial markets and “concerns about liquidity.”
“Luxury buyers don’t buy because they need a place to live,” said Mia Simon, a Redfin agent in San Francisco. “So they have flexibility to time a home purchase when the market is favorable.”
Soaring prices at the high end may also be giving wealthy buyers pause — especially at the very top of the market. According to Redfin, the average list price of $1 million-plus homes on the market surged 5 percent to $2.5 million in the third quarter as compared to the same quarter last year. The average price was the highest since at least 2012, the report said.
Still, sales volume among such high-end homes remains strong. Total sales of homes priced at $1 million or more jumped 17 percent in the third quarter compared to a year ago, while sales of homes priced at $5 million or more rose 15 percent. Inventory is also falling, and was down 3 percent for million-dollar homes.
Redfin’s chief economist, Nela Richardson, said that with inventory tighter, many high-end sellers have become “unrealistic” about prices. That’s created a standoff between buyers and sellers, which will either lead to price discounting or slower sales in the beginning of 2016.
“The luxury market was the first to recover from the housing downturn, and now it’s a bellwether of slowing price growth for the rest of the market,” Richardson said. “Sales at the top end of the market continue to soar, but prices are downshifting.”
The most expensive home sold during the quarter was the $60 million sale of the penthouse of Faena House in Miami to billionaire hedge fund honcho Ken Griffin. The second most expensive sale was a mansion in Belvedere, California, for $47.5 million.
Newport Beach, California, had the highest number of million-dollar sales outside of New York City, with 107 of them in the third quarter. La Jolla, California, ranked second with 105 of these sales, followed by Scarsdale, New York, with 103. Redfin does not include New York City in its reports, because publicly available data is limited.
The biggest discount on a dollar basis during the quarter was the $12 million price cut on a home in Belvedere, California, which first listed for $27.5 million; it ended up selling for $15.5 million. A home in Occidental, California, ranked second, listing for $21.5 million and selling for $11 million.
The biggest sales over the asking price were all in or near Silicon Valley, suggesting that the tech boom continues to fuel huge real estate gains in the area. One home in Palo Alto, California, was priced at $1.28 million but sold for $1.76 million, and another was listed at $2.8 million but sold for $3.7 million.
Similarly, a home in Sunnyvale, California, listed for $1.24 million but sold for $1.69 million.