Average sales prices for luxury homes increased 1% year-over-year to $1.64 million in Q2 2019, rebounding from a 1.7% drop in Q1 2019, according to new data from Redfin.
“Luxury home sales have been relatively soft since early 2018 when the tax code overhaul made it so that people with big mortgages and those living in high-tax states and counties couldn’t deduct as much from their annual tax bill,” said Redfin Chief Economist Daryl Fairweather. “But wealthy Americans who would otherwise be considering a multi-million dollar home purchase may now be a bit spooked that the economic expansion they’ve been enjoying for the past decade could soon be nearing its end.”
Redfin defines a home as “luxury” if it’s among the 5% most expensive homes sold in the quarter. Home prices in the other 95% percent of the market rose 3.2% from 2018 to an average of $322,000 in Q1 2019.
The sale of homes priced at or above $1.5 million fell 4.6% year-over-year for the quarter—the third-consecutive quarter drop of falling sales in that category. The decline in that category for Q1 2019 was 13.8%. The sales of homes priced under $1.5 million fell 6.7% from 2018.
Seeing an increase, though, was the supply of homes listed at or above $1.5 million, which rose 18.7% in Q2 2019. This markets the fifth-consecutive quarter for an increase and the largest in two years. The supply of homes priced under $1.5 million grew by 2.1%.
Redfin states that the minimal gain in prices, along with falling sales and an increased supply, suggests demand for luxury homes is “tepid.” While marking Q2 2019 as weak for luxury homes, the market did rebound from the first four months of the year, when prices fell for the first time in three years and sales posted its biggest decline since 2010.
“Business owners and people with large investments are paying close attention to the escalating trade war and other uncertainties in global markets,” Fairweather said. “Despite the fact that the economy at home is continuing to grow, these and other signs that a recession could be looming are likely causing well-heeled homebuyers to feel extra cautious about a big purchase or investment. The Fed’s rate cut is unlikely to have a big impact on the course of the economy and especially on the luxury housing market, where buyers are the least rate-sensitive. As a result, I expect to see continued caution in the high-end market as the future of the economy becomes more clear to those whose wealth is most closely tied to it.”