U.S. luxury home sales will follow an old cliche in 2019: What goes up must come down.
An economic cocktail that includes rising mortgage rates, the biggest rewrite of the federal tax code in a generation, stock market volatility and rapid home price growth began to cool high-end home sales around the country in the second half of the year, and the trend is expected to continue through 2019 with some notable exceptions, according to a year-end report from realtor.com.
The slowdown will mark a change of pace for a section of the U.S. housing market that’s seen record-setting price growth and robust activity over the past two years.
“It’s a different world at the end of year than it was at the start of the 2018,” said Danielle Hale, chief economist at Realtor.
Realtor.com, like Mansion Global, is part of News Corp.
In the first 10 months of 2018, around 100,500 homes sold for $1 million or more across 85 luxury markets areas in the U.S., an increase of 10% compared to the same period a year ago.
A record-breaking 118,000 home sales at or above $1 million are expected once all of the closings for 2018 are recorded, according to the data from Realtor.
Luxury prices also hit new heights in places like Nashville, Miami, other parts of Florida and north Dallas. The entry-level price to be considered luxury in Williamson, Tennessee, which encompasses Nashville, hit $1.052 million in 2018, surpassing the million mark for the first time, according to Realtor’s analysis, which defines luxury as the top 5% of sales.
Luxury house prices soared nearly 18% second-home market in Sarasota, Florida.
But the flurried pace of high-end housing activity is showing clear signs of slowing nationwide, as economic and political uncertainty creeps into buyers’ psyche. Some of the country’s most expensive markets, including Manhattan, Los Angeles, Chicago and Seattle, saw sales decline year over year in 2018.
Subdued sales caused luxury inventory to build up for the first time in two years. By December, the number of million-dollar-plus listings on the market was up around 16% compared to a year ago.
“Home prices in the segment could begin to adjust if supply continues to build up and luxury buyers begin to reassess the value of their purchase. The result could see some sellers re-calibrate expectations, with more properties seeing price cuts,” Realtor said in its official luxury forecast.
The local differences among the country’s luxury housing markets are likely to become more pronounced, particularly in response to tax reform that has negatively affected high-tax, high-income areas like California and New York.
Honolulu is one such city where activity has cooled dramatically compared to a year ago. Luxury prices were flat on the Big Island in 2018 and million-dollar-plus home sales dropped nearly 20%, according to Realtor.
“If the cost of living rises as a result of taxes than you’ll see that reflected somewhere,” Ms. Hale said. “Whether that’s just fewer home sales, less real estate activity or even less borrowing for home purchases.”
Still, there will be many areas on pace to see significant growth this year. They include low-tax, less-cost cities. Williamson County, Tennessee, saw the number of million-dollar-plus sales soar 55% in 2018, as a growing economy in the area and the state’s favorable tax rules draw people to the city.
Low-tax Colorado, North and South Carolina and Florida will also likely see continued strength in their luxury housing markets, with prices and sales rising, according to the report. “These locales will attract demand from higher cost areas as luxury buyers reallocate investments during and post tax season,” the report said.