It’s been a brutal year for the luxury real estate market, but it looks like things may finally calm down. Maybe.
High-end home sales signaled a recovery in the second quarter of 2019, according to the latest report from Redfin, which showed that prices rose a mere 1% to $1.64 million. While the gain is nominal, it could be a sign that the bleeding has stopped after several quarters of falling sales.
Certainly, the second quarter’s performance was a boost from the first quarter of the year, which saw luxury prices decline 1.7%.
In Q1, prices declined for the first time in almost three years, and sales saw their largest decline since 2010 as supply increased by double digits.
But of course, things aren’t all that rosy.
According to Redfin, sales of homes priced at or above $1.5 million declined 4.6% year over year last quarter. That’s the third consecutive quarter of dropping sales in the category, though the decline was much smaller than the 13.8% dip in the first quarter.
The situation is causing inventory to spike, with the supply of homes priced at or above $1.5 million increasing 18.7% in Q2, the fifth-straight quarter of rising luxury inventory and the biggest increase in two years.
While Q1’s stats represent a rebound of sorts, Redfin Chief Economist Daryl Fairweather said the minor price gain, coupled with a dip in sales and an uptick in supply, suggests the market for luxury homes will continue to be tepid.
“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 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.”
Fairweather said talk of a looming recession might deter high-end buyers from making an investment, and rate cuts aren’t likely to help much.
“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,” Fairweather said. “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.”