Today's top story: Luxury home sales plunge to a 10-year low

Hi everybody, Joe Hillner with Your Home Sold Guaranteed Realty, where we guarantee the sale of your home or I'll buy it! 

Ok, so every week, I share market data to keep you informed with the local real estate market.  

Here is this week’s Boca Market Watch.

First, Single Family Homes:

This past week, 53 new listings, so so, and ranging in price from $424K to $5.3M!  15 homes back on the market, while 81 homes listed took a price decrease, even more than last week's super high number, and 7 sellers raised their asking price.  And like the the last couple of weeks, only 28 different properties under contract, and 26 going pending, just awful! 25 homes were unsuccessful in selling and were taken off the market or the listing expired outright.  And a blah week for sales with 55 homes sold, ranging from $333K to $9.4M!

Next up, Condos and Townhomes:

58 new listings, not too bad,  and ranging from $122 Grand to $3.5 Million.  17 units came back on the market, 68 properties with a price decrease,  again, that's a lot, and 5 sellers with an increase.  And another poor week with 38 different properties under contract, and 30 going pending,  And 20 condos or townhomes were unsuccessful in selling and were taken off the market or the listing expired. 63 closed sales this week, not great, and ranging in price from $119K to $2M.

Here's what's making news right now.

A report by Redfin says that luxury home sales in the US dropped by 28.1% year over year during the 3 months ending Aug. 31. 

That decline is the largest to take place at least since Redfin started collecting this data in 2012, surpassing even the 23.2 percent drop in luxury sales to take place at the height of the COVID pandemic when the market slowed to a near halt.

Redfin defines luxury properties as homes estimated to be in the top 5 percent of a market’s home price, based on market value, and non-luxury homes include properties estimated to be in the 35th to 65th percentile based on market value.

Non-luxury home sales also saw their steepest decline on record, falling 19.5 percent during the same period. The slowdown was also slightly greater than the 19 percent decline in home sales to take place during pandemic shutdowns, specifically, April, May and June, 2020.

Given that luxury buyers are often cash buyers, higher mortgage rates don’t often scare them off. Still, some luxury buyers do take out mortgages and incorporate them into their investment strategy. And given rates’ high volatility in recent months, inflation and a topsy-turvy stock market and economic uncertainty, even luxury buyers seem to be questioning whether or not now is a wise time to buy.

For a luxury buyer, a higher interest rate can equate to a monthly housing bill that’s thousands of dollars more expensive. Someone who was in the market for a $1.5 million home last year may now have a maximum budget of $800,000 thanks to higher mortgage rates. Luxury goods are often the first thing to get cut when uncertain times force people to reexamine their finances.

In our area, for the same period, home sales are down 34% year over year, clearly a dramatic shift in the market.  Yet prices are still up, by a whopping 32% vs a year ago, wow!  That's a very rare situation and should not be expected to continue.  

Properties are sitting on the market longer now - 43 days on avg, vs 25 last year.  And as it takes longer to sell a home, with new properties also hitting the market, our total inventory has virtually doubled - from 1.6 months of supply to 3.1 months.  That's still not enough to get us to a balanced market, but we are clearly heading in that direction.

That's what the Fed Chairman Powell announced this week - his plan to reset the housing market.  In his words, it's going to be a "difficult correction".  How does he plan to make this happen?

First, by continuing to put upward pressure on interest rates.  Second, tip the RE market over into falling prices - in many markets, he's talking about double digit price drops, wow.  And finally, since the RE market is such a big part of the economy, he's counting on that correction to help him get a handle on inflation.

The Fed has a dual mandate from Congress: Maintain "maximum employment" and "stable prices." But as long as inflation remains above the Fed's 2% target, Powell says that stable prices will be the central bank's main focus. Even if it means pushing the economy into a recession to achieve it.  Looks like we're in for a rough ride...