America’s luxury home market is facing an inventory shortage but its not as deep or severe as the one in the wider housing market.
Redfin says that inventory of homes priced $1 million or more was down 20.4% in the first quarter of 2018 compared to a year earlier, pushing prices in the luxury sector up 7.9% to an average $1.8 million.
There’s a similar percentage drop in supply of homes priced at $5 million and above (19.2% down year-over-year).
The firm’s latest report says that the drop in inventory for in the luxury market is relatively new having started in 2015.
And while the decline in available homes is less pronounced for the high-end market, it is leading to escalating competition among buyers. Homes sold in an average 82 days in Q1 2018, down 9 days from a year earlier; and 1.5% of homes sold for above asking, up from 1.3% a year earlier.
"For the first time since changes to the tax code went into effect, luxury buyers could no longer deduct more than $10,000 in state and local property taxes or interest for mortgages over $750,000,” said Redfin chief economist Nela Richardson. “In a world of balanced supply and demand these changes would have dampened price growth. Instead, this quarter saw the strongest luxury price appreciation in four years, demonstrating that the current inventory crunch is extremely broad-based and affects buyers at every price range."
The hottest cities for luxury prices
Several cities in Florida and Nevada saw strong luxury price growth in the first quarter. In Vero Beach, Florida, the average sale price for a luxury home soared 68% over last year to $2.65 million. The early January sale of a $17.5 million property likely played a role in driving up the average sale price in Vero Beach.
However, some cities saw luxury home prices decline in the first quarter.
The average price for a luxury home fell 26.1% y-o-y in Long Beach, California. Prices for high-end properties also fell in Washington, D.C. (-9.6%), Fort Lauderdale (-7.3%) and Clearwater (-4.5%).
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