(NASDAQ: RDFN) -- The average sale price for luxury homes nationwide climbed 1.6% year over year to $1.63 million in the fourth quarter of 2019, a rebound that marks the largest gain since the third quarter of 2018, according to a new report from Redfin (www.redfin.com). Still, while this increase represents an improvement from the 4% drop in the first quarter of 2019, it hasn't yet returned to the outsized growth of recent years.
For this analysis, Redfin tracked home sales in more than 1,000 cities across the U.S. (not including New York City) and defines a home as luxury if it's among the 5% most expensive homes sold in the quarter. While luxury prices inched upward in the fourth quarter, homes in the other 95% of the market saw prices increase 5.2% annually to an average of $317,000, the third consecutive quarterly gain.
Sales of homes priced at or above $1.5 million rose 11.2% in the fourth quarter, marking the second-consecutive increase following three quarters of declines. Sales of homes priced below $1.5 million climbed 6% year over year.
"Demand for luxury is improving. That's showing up primarily in an increase in sales right now, but it's also putting some slight upward pressure on prices," said Redfin chief economist Daryl Fairweather. "We're ending the year in a much better position than we started, which is a good sign for 2020. I expect price growth to return to at least 3% to 5% by spring."
Supply of active listings priced at or above $1.5 million grew 5.8% year over year in the fourth quarter, the smallest annual increase in about two years. Supply of active listings priced below $1.5 million dropped 5.1% year over year during the fourth quarter.
"Back in 2018, prices were growing just as fast in the top of the market as they were in the bottom of the market," Fairweather continued. "It's unclear if that's going to happen again, as prices are already so high, and a lot of the demand seems to be at the low end. But if wealth inequality continues to rise and the rich keep getting richer, it's very possible that luxury could accelerate to that point again."
The typical luxury home sold in the fourth quarter took 60 days to go under contract, seven days longer than last year. In the non-luxury market, the typical home went under contract in 43 days, one day faster than a year earlier.
Biggest price gains
Luxury prices increased in two-thirds of the markets tracked by Redfin, with the top three gainers in the southeast. West Palm Beach, FL topped the list for the second straight quarter, with a 104.5% year-over-year increase to an average price of nearly $3 million. It was followed by Charlotte, NC (up 21.2% to $1.26 million) and Tampa, FL (up 20.6% to $1.30 million). The top 10 cities with the largest luxury price gains also showed impressive performance in the rest of the market, with all but one growing more than 5% year over year.
"The Palm Beach market was slow over the summer with rumors of a potential crash, a possible rise in interest rates and jitters from Hurricane Dorian. A lot of people were touring but not making offers," said Redfin Palm Beach market manager Delray Valle. "But then the market never crashed, the storm largely spared Florida and Palm Beach blew up. People who weren't closing deals in the summer closed in the winter, plus, you had an influx of snowbirds and folks looking to take advantage of Florida's tax benefits."
Here's a look at the top 10 cities where luxury home prices rose most in the fourth quarter of 2019:
Luxury market (top 5%) Rest of market (bottom 95%) City Average sale price YoY increase Average sale price YoY increase West Palm Beach, FL* $2.91 million 104.5% $229,000 2.4% Charlotte, NC $1.26 million 21.2% $284,000 9.4% Tampa, FL $1.30 million 20.6% $267,000 7.7% Sarasota, FL $2.13 million 20.5% $326,000 8.4% Austin, TX $1.82 million 20.0% $426,000 7.0% Chandler, AZ $933,000 19.8% $353,000 8.3% Henderson, NV $1.33 million 19.2% $343,000 5.4% Scottsdale, AZ $2.52 million 19.2% $537,000 5.4% Miami, FL $1.94 million 18.3% $346,000 7.3% Bakersfield, CA $665,000 16.4% $253,000 9.2%
* In one building, 16 condos sold for between $4.3 million and $13 million each during the quarter.
Biggest price declines
Luxury home prices in St. Petersburg, FL slid 13.3% to an average of $1.21 million in the fourth quarter, the largest drop of any city. Next came San Diego (down 13.1% to $2.46 million) and Mesa, AZ (down 8.7% to $698,000). Luxury prices also slipped in San Francisco and Chicago.
"The luxury market in St. Petersburg is challenging because it's an old city. Even when you renovate the $1 million-plus homes, many of them still have low ceilings, bold design features and lack the open-floor plan that modern buyers are looking for, so house hunters often push back on pricing because they need to spend money on renovations," said local Redfin agent Brian Walsh. "The trend that you saw this past quarter is reflective of sellers finally understanding that they're not going to get the pie-in-the-sky price that they thought they would."
To read the full luxury report, including the methodology and a list of the most expensive homes that sold in the fourth quarter of 2019, please visit: https://www.redfin.com/blog/q4-2019-luxury-housing-report
About Redfin Redfin (www.redfin.com) is a technology-powered real estate brokerage, combining its own full-service agents with modern technology to redefine real estate in the consumer's favor. Founded by software engineers, Redfin has the country's #1 brokerage website and offers a host of online tools to consumers, including the Redfin Estimate, the automated home-value estimate with the industry's lowest published error rate for listed homes. Homebuyers and sellers enjoy a full-service, technology-powered experience from Redfin real estate agents, while saving thousands in commissions. Redfin serves more than 85 major metro areas across the U.S. and Canada. The company has closed more than $85 billion in home sales.
For more information or to contact a local Redfin real estate agent, visit www.redfin.com. To learn about housing market trends and download data, visit the Redfin Data Center. To be added to Redfin's press release distribution list, subscribe here. To view Redfin's press center, click here.
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