Luxury Home Sales Decline for 1st Time in 2 Years; Home Sales at Asking Price Fall to Two-Year Low

Mike Sorohan msosohan@mba.org

February 08, 2019

Redfin, Seattle, said luxury home sales fell by nearly 4 percent annually in the fourth quarter , the first year over year drop in more than two years.

A separate report from Zillow Inc., Seattle, said only 19 percent of homes sold in the U.S. in December fetched more than their list price, and the rate from November dropped in eight of the nation's top-10 markets.

The Redfin quarterly Luxury Report said the decrease in luxury home sales comes as the average sales price of luxury homes rose by 4.7 percent annually nationwide to an average of $1.722 million, equal to second quarter growth and up from 3.2 percent in the third quarter.

Redfin said for homes in the other 95 percent of the market (less than $2 million), prices grew by 4.3 percent to an average of $341,000 in the fourth quarter.

Redfin Chief Economist Daryl Fairweather said volatility on Wall Street and global economic uncertainty may have contributed to a decline in high-priced home sales.

"In the fourth quarter of 2018 there was a lot of economic uncertainty--mortgage interest rates peaked in November, and the stock market was all over the place," Fairweather said. "This may have encouraged luxury sellers to hold on to their real estate assets and also caused luxury buyers to be reluctant to make major home purchases."

Fairweather also noted economic uncertainty abroad, citing a slowing China economy that might have affected a segment of U.S. luxury sellers and buyers whose wealth is invested overseas. "It's worth noting that when we're examining the most expensive segment of the housing market nationwide, a disproportionate amount of the movement seen in prices and sales is driven by activity--or lack thereof-- in major expensive coastal markets like San Francisco and San Jose, where sales fell by double digits while price growth slowed or reversed at the end of the year."

Redfin reported the typical luxury home that sold in the fourth quarter went under contract in 74 days, down from 78 days a year ago. By contrast, non-luxury homes sold in the final quarter took 56 days to go under contract, down from 63 days in the fourth quarter the year before.

"The fact that sales of high-priced homes declined as their prices grew at a relatively strong rate can be explained in part by the basics of supply and demand," the report said. "Compared with a year earlier, there were 6.5 percent fewer $2 million-plus homes on the market last quarter, the seventh quarter in a row inventory of luxury homes has dropped annually. Supply of homes priced under $2 million, meanwhile, has been on a steady upward trend since the beginning of 2018."

The report said cities in Florida experienced the biggest increases in luxury home prices. In West Palm Beach, the average sale price for the top 5 percent of homes sold in the fourth quarter was $1.628 million, up 35 percent from the year before; in St. Petersburg, luxury prices shot up 30.7 percent to $1.427 million.

Florida cities also dominate places where luxury home prices dropped the most. Sarasota saw an average luxury price of $1.760 million, down 30.7 percent annually, followed by Fort Lauderdale, where the average luxury home went for $2.689 million, down 26 percent from the year before.

Meanwhile, Zillow reported 19 percent of homes sold in the U.S. in December fetched more than their list price, and the rate from November dropped in eight of the nation's top-10 markets. Zillow noted this share has been declining steadily since its peak of 24 percent of homes sold above list price in May. Further signaling a potential market shift, homes that sold above asking price over the course of 2018 typically brought in $6,830 more--down from $7,000 the year before.

The report said the downward trend in December was widespread: Eight of the 10 largest markets in the U.S. experienced a drop from November levels, with Philadelphia and Washington, D.C. the exceptions. Among the largest 35 markets, 27 saw a downtick in the share of homes that sold above list. The largest drop was in Indianapolis, where homes selling above list fell nearly 13 percentage points, followed by San Francisco, down 5.4 percentage points. Notably, San Francisco still saw the second-highest share of homes sell above list price in December (42.6 percent) among top-35 markets, exceeded only by San Antonio (44.3 percent).

Zillow Senior Economist Aaron Terrazas said despite the slowdown during the back half of the year, the annual share of homes sold above list price still trended upward for the fourth consecutive year, though the pace is slowing. Nationally, 23.5 percent of homes sold above list price in 2018 compared to 22.7 percent in 2017. The median amount above asking that sellers realized fell from $7,000 to $6,830.

"Last year marked an inflection point in the housing market," Terrazas said. "The first half of 2018 looked a lot like the previous three years with sellers firmly in control of the market and buyers outbidding each other for scarce inventory, pushing up prices."

Terrazas said the shift occurred in mid-summer. "Sellers sitting on the sidelines joined in, increasing inventory," he said. "The balance of power began to swing marginally back toward buyers--particularly in higher-priced communities--during the second half of the year, an unfamiliar chill after several years of frenzied activity. With mortgage rates now back down, early data from the first month of 2019 suggest that it is still premature to call it a buyer's market. But more than any time in recent memory, it is important for sellers to be thoughtful in their listing strategy. Buyers are out there, but they're no longer fighting each other tooth and nail to get in the door."

Zillow reported the San Francisco Bay Area and Silicon Valley remained the hottest housing region in the country in 2018. Among top-35 markets, San Jose, Calif., (64.1 percent) and San Francisco (61.6 percent) had the highest share of home sales above asking price despite a steady slowdown since the start of last year. These two markets combine to fill the top-10 lists for share of homes sold above asking and median price above asking since Zillow began tracking this data in 2012. This includes a record $101,000 median price above asking in San Jose in 2018, shattering the previous record of $70,000 set in San Jose in 2017.

Miami (9.7 percent of homes sold above asking), Tampa Bay (14.5 percent) and Pittsburgh (15.2 percent) were 2018's coolest top-35 markets. Nearly 84 percent of homes in Miami sold for below their asking price last year, which was the highest share among top-35 markets since 2014.

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