High-End Homes Hit Peak Prices as Luxury Investors Scramble for Better Deals

Home prices are rising across the country, but luxury home prices are skyrocketing. According to data from Redfin, luxury home prices rose twice as fast as non-luxury homes in the first quarter of 2024.

But even as prices jumped, sales are still rising, even as prices for non-luxury homes have declined. The median-priced luxury home sold for a record $1.225 million in the first quarter of 2024, up 8.7% year over year. At the same time, sales of luxury homes were up 2%, compared to a decline of 4% in non-luxury homes, which sold at an also-record median of $345,000. 

Why Are Luxury Home Prices Rising So Fast? 

The luxury real estate agents we interviewed all agreed on one thing: The rise in prices is largely due to a lack of supply. Shocking.

“There isn’t enough inventory for people to buy,” Jason Mudd, managing partner at real estate agency Cindy Raney & Team in Fairfield County, Connecticut, told BiggerPockets. “So long as you’ve got this huge inability to build enough homes, you’re going to have a supply-and-demand issue.” 

While the total supply of luxury homes rose 13% year over year, supply is still below pre-pandemic levels, according to Redfin, which looked at homes estimated to be in the top 5% of their metro area based on market value.

There’s a lot of cash being made, and many luxury real estate buyers are ready to pay in cash or almost all cash. This is helping contribute to demand, as luxury homeowners aren’t as constrained by mortgage rates, Mudd said.

Part of this demand for luxury homes is because of the changes in how people live today,

Nicole Beauchamp, associate broker at Sotheby’s International Realty in NYC, says, “More people are dividing their time between more residences, and that also creates opportunity on the investment front,” she explained. 

Some of Beauchamp’s clients are buying their third, fourth, or even fifth property. While some are bought as long-term investment properties, some buyers are looking for vacation homes or properties in areas where their kids may go to college.

Meanwhile, homebuyers from California and New York who are moving to other areas like Miami are finding their dollars go further, says Filippo Incorvaia, CEO at FI Real Estate.

“The people who are residents of California, residents of New York, they’re used to a price point that’s much higher than South Florida… and they are coming after selling their properties in California, in New York with much more capital to invest in properties that are much more inexpensive,” he said.

Some builders are taking note of the lack of supply in Florida and building condos and apartments that can be split into different homes, Incorvaia added. That allows buyers to use part of the property when they want and rent out the other half of the residence as either a short-term or long-term rental

Should Investors Be Looking at the Luxury Real Estate Market?

With prices so high right now, does it still make sense to invest in the luxury space? Beauchamp said it depends on what investors are looking for and where you are based. 

Once you know what your goals are, whether it’s for appreciation, cash flow, or a place to live in, “then you reverse-engineer what the ideals are,” she said. For example, if you’re looking to purchase a luxury home as a short-term rental, buying in an area that doesn’t permit short-term rentals, like New York City, might not make the most sense.

Other real estate brokers agree that the short-term rental market may be oversaturated in some popular areas, like downtown Miami.

“I would not be advising any of my clients to be buying [short-term rentals] at the moment, at least until things change a little bit, and we see how absorption goes,” says Ivan Chorney with the Ivan and Mike Team at Compass in Florida.

And while there’s no crystal ball to predict the future of real estate, Mudd thinks it still makes sense to invest in real estate today. “Real estate historically has proven to be a good investment, and we’ve seen in recent years, in certain markets… we’ve seen an incredible surge in home prices,” he added. 

Final Thoughts 

In some popular destinations, there are certainly opportunities to be had, as prices are likely to only go up in the next few years. 

While luxury homes are impacted less by mortgage rates, there’s still a supply issue across both luxury and non-luxury markets. Most high net worth buyers are more concerned about what’s happening in their stock portfolio than where rates are, said Chorney. 

“This massive wealth migration that we’ve seen, I think, has only just started; I actually think we might be in the second inning,” he said.

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.

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