America’s housing market is a nightmare for most, but the rich are sitting pretty. As aspiring homeowners get shut out, the wealthy are snapping up properties left and right.
It’s been a rough season for home sales. New home sales dipped in June and didn’t meet expectations after a 15% plunge in May. Sales of previously owned homes also fell for the fourth month straight.
But there’s one glimmer of hope: luxury homes.
Properties priced over $1 million were the only category to see sales increase in June, according to the National Association of Realtors. Why? With mortgage rates hovering around 6.8%, up from around 3% a couple of years ago, anyone needing a loan is paying through the nose. But the wealthy, flush with cash, don’t need to worry about that.
“I can’t remember the last time I heard a buyer talk about financing,” Lisa Rooks Morris, a luxury real estate agent in Sarasota, Florida told Bloomberg. “They all come in with cash.”
This cash-heavy buying spree is boosting luxury home builders. Toll Brothers Inc. reported stronger-than-expected orders in its second-quarter earnings and upped its full-year delivery forecast. Its stock is near a record high, up about 160% since early 2023, making it one of the top performers in the S&P Midcap 400 Index.
“Historically, higher-priced homes are the first to feel the hit when interest rates rise,” Zonda’s chief economist Ali Wolf told the outlet. “We aren’t seeing that today. High home equity and the strong stock market have acted as a buffer against interest rates for wealthier Americans.”
By the end of the first quarter, 45% of high-end US homebuyers were paying all cash, the highest rate in at least a decade, according to Redfin. They’re funding purchases with fat stock portfolios, sales of commercial real estate and inherited wealth.
Meanwhile, entry-level buyers are struggling with savings that haven’t kept up with inflation. For lower-income borrowers, the issue goes beyond high mortgage rates — getting approved for a loan is tough as credit card and auto loan delinquencies rise.
The split we’re seeing in the housing market mirrors the wider economic divide, Nationwide senior economist Ben Ayers explained to Bloomberg. While asset values surge, many people are barely scraping by.
Well-heeled buyers are flocking back to pandemic boomtowns like Black Diamond, Washington, south of Seattle. At Toll Brothers’ Regency at Ten Trails, home prices start at $600,000, but the most popular models top $1 million. More than half of buyers are paying cash, says sales agent Kristi Brewer, noting a recent surge in demand.
In Florida, Morris sold a $7.75 million home in just 72 hours earlier this year. Unlike the frenzied pandemic market, there’s now an abundance of quality inventory. “Now you have the time to actually contemplate, shop and negotiate,” Morris told Bloomberg, something luxury buyers didn’t have during the pandemic bidding wars.
Homebuilders know the need for affordable housing is urgent. But with the cost of land, labor and materials all rising, it’s a tough nut to crack. Houston-based David Weekley Homes, one of the largest privately held builders, is struggling to produce homes for under $400,000, says president Chris Weekley.
“Every builder is trying to push into more affordable homes,” Weekley told Bloomberg. “But the risk, as we do that, is that the one way to get cheaper land is to go further out. And that’s a riskier bet.”
Despite the challenges, the market for high-end homes remains strong. As of 2022, 39% of US homes didn’t have a mortgage, and many buyers are using cash, Zonda’s Wolf said.
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