Luxury Home Sales Soar in 2020
“The luxury housing market normally takes a hit during recessions as wealthy Americans tighten their purse strings, but this isn’t a normal recession,” said Redfin chief economist Daryl Fairweather. “Remote work, record-low mortgage rates and strong stock prices during the pandemic are allowing America’s wealthy families to gobble up expensive houses with home offices and big backyards in the suburbs.”
The real estate market has been declining in recent years, especially when it comes to luxury homes. However, in 2020, there was a turnaround. Experts saw a rise in the purchase of luxury homes, according to the real estate broker Redfin. This is despite the rise in the coronavirus and the resulting unemployment.
Redfin reports that luxury homes sales saw the largest sales jump since 2013. The sales increased by 41.5 % in the third quarter. Redfin also reports that luxury homes' sales are defined as the top 5% of the market values. The median sale price of the top-tier luxury homes in the US was 862,700 in the 3rd quarter of 2020. This was a 6.5% rise. Following the same pattern, the sales of the medium-priced homes also rose. However, they did so by only 3%. On the other hand, the sales of affordable homes declined by 4.2%.
Despite the coronavirus pandemic and the economic recession, Redfin reported that the sales were rising. This is an unusual pattern as in times of recession; the luxury homes market usually takes a hit. However, according to the chief economist of Redfin Daryl Fairweather, “This isn't a normal recession. Remote work, record-low mortgage rates, and strong stock prices during the pandemic are allowing America's wealthy families to gobble up expensive houses with home offices and big backyards in the suburbs. Meanwhile, scores of lower- and middle-class Americans have lost their jobs or are still renting in the city because they're essential workers and have to commute into work, so they're unable to reap the benefits of homeownership."
The coronavirus has seen changes in behavior when it comes to purchasing new things. The pandemic has resulted in pushing high-end buyers in the stock market. At the same time, it has kept out first-time buyers as they are unwilling to invest in luxury items, especially at this time.
Some buyers in the West Coast metro areas have increased the demand for luxury home sales in the third quarter. For instance, in Sacramento, luxury sales soared 86.1% when compared to the previous year. Riverside, CA, and Oakland, CA also made the list for top 3. West Palm Beach, FL, also saw increased gains.
Luxury sales declined in only 2 of the 49 US metros. These were Philadelphia (-8.2%), and Nassau County, NY (-2%).
Another reason why the prices of luxury homes went up instead of prices of affordable housing is because families who would invest in affordable housing have been severely affected by the pandemic. According to Fairweather, if the government does not provide the affected families with income and the people continue to be unemployed, the owners of these homes will not be able to purchase houses from this market. They will be more inclined towards renting the home as it will be more feasible. Seeing this trend, the supply of luxury homes has now increased by 8.4% over the past year, according to Redfin. On the other hand, prices of other types of housing declined.
