U.S. Luxury Home Sales Saw a Record 38.1% Drop in Late 2022: Analysis and Outlook

Sales of luxury U.S. homes experienced a record 38.1% year-over-year decline in the three months ending November 30, 2022. This drop significantly outpaced the 31.4% decrease in non-luxury home sales, marking the most substantial pullback in the high-end market since at least 2012. Core factors included economic uncertainty, rising interest rates, and a volatile stock market. However, early indicators from late 2022 suggested a potential for demand to inch back as mortgage rates began to soften.

What Defined a Luxury Home in This Analysis?

This report defines a luxury home as a residential property estimated to be in the top 5% of market values for the U.S. housing market. For context, the median sale price for a luxury home during this period was $1.1 million. Non-luxury homes were defined as those in the 35th to 65th percentile of market value, with a median sale price of $325,000. This tiered analysis provides a clear picture of how different market segments reacted to economic pressures.

Why Did the Luxury Market Slow Down More Sharply?

The slowdown impacted the entire housing market, but the luxury segment was more sensitive for several key reasons.

• Economic Sensitivity: High-end purchases are often discretionary and among the first to be postponed during periods of economic stress and uncertainty.
• Investment Property Dynamics: Luxury properties are frequently bought as investments. With forecasts suggesting home values and rents could soften in 2023, the investment prospects became less attractive.
• Stock Market Correlation: Affluent buyers often have significant wealth stored in the stock market, which was experiencing substantial volatility, impacting their purchasing power and confidence.
• Post-Pandemic Correction: The luxury market saw outsized growth during the pandemic housing boom, meaning it had more room to correct downward compared to the broader market.

Which Metro Areas Experienced the Largest Declines?

The downturn was most pronounced in expensive coastal markets, where affordability was already a significant challenge.

Markets in the Midwest, such as Kansas City, MO (-20.2%) and Cleveland (-21.5%), saw more modest declines, suggesting regional economic factors were also at play.

Are There Early Signs of a Market Rebound?

By the end of 2022, there were nascent signals that buyer demand might be starting to recover. As mortgage rates began to decline from their peaks, measures of homebuyer activity, such as mortgage application volumes, began to tick upward. Some real estate agents reported increased activity from buyers, including those seeking jumbo loans—a type of mortgage that exceeds conforming loan limits and is typically used for high-end home purchases.

“With mortgage rates falling, a lot of house hunters see this as their moment to come back and compete,” noted a Seattle-based agent. “Many of my buyers are taking out jumbo loans... some are getting rates in the low 5% range.”

How Did Supply and Prices Respond to the Shift?

The sharp decline in sales led to a noticeable shift in market dynamics, particularly for supply.

• Rising Supply: The number of luxury homes for sale rose 5.2% year-over-year to roughly 163,000, the largest increase since 2016. In contrast, the supply of non-luxury homes fell by 5.7%.
• Slowing Price Growth: While prices continued to appreciate, the rate of growth slowed significantly. The median sale price for both luxury and non-luxury homes rose 10% year-over-year, a sharp deceleration from the 17% growth seen one year earlier.

For potential buyers and sellers, the late 2022 data highlights several key considerations. Buyers may find more options and less competition in the luxury segment, though economic uncertainty remains a factor. Sellers must price their homes competitively based on current, localized data rather than peak-pandemic benchmarks. Monitoring mortgage rate trends is critical, as even a small decrease can significantly impact affordability for high-priced homes. Based on our experience assessment, the market was in a clear transition phase, moving from a period of frenzied growth to one of more cautious negotiation.