Luxury home price growth outpaces the rest of the market for the first time in three years

Year-over-year growth in sales prices for the nation's most expensive homes edged out price growth in the rest of the market in the second quarter of 2017, according to the real estate company Redfin. This marked the first time luxury homes have appreciated faster than the remainder of the homes on the market since the last quarter of 2014.

Redfin defines the luxury market as the top 5 percent of the most expensive homes sold in an area. Nationwide, the average luxury home sold for $1.79 million in the second quarter of the year, up 7.5 percent from the previous year. In the remaining 95 percent of the market, the average sales price was $336,000 – year-over-year growth of 7 percent.

A declining inventory of homes available for sale has helped drive up home prices in many markets, according to the National Association of Realtors. Redfin suggests that this trend may be the reason for the quarter's strong price growth in the luxury market, since it marked the first time since the company began tracking this data that the luxury home inventory has declined from the previous year.

"The housing shortage is now affecting the top of the housing market," said Nela Richardson, chief economist at Redfin. "After five consecutive quarters of double-digit inventory growth, the number of million dollar-plus homes for sale dropped by 9.4 percent."

In addition, the number of homes priced at $5 million or higher dropped by 9.5 percent from the second quarter of 2016.

Despite the reduced inventory, competition in the luxury market was not as pronounced as in the remaining 95 percent of the market. The average luxury home sold in 69 days, three days faster than the previous year. In the rest of the market, the average home spent 56 days on the market – 6 days faster than the previous year.

More than one in four homes in the bottom 95 percent of the market—25.8 percent—sold above list price in the second quarter of 2017. Only 1.7 percent of homes in the top 5 percent of the market sold above list price in the same period.

The strongest price growth in the luxury market occurred in Irvine, Calif., with Redfin crediting this trend to the growth of technology sector jobs in the market. The average luxury home in this area sold for $3.51 million, a year-over-year increase of 37.4 percent. In the rest of the market, the average home sold for $824,000 – up 6.5 percent.

Luxury homes were also experiencing strong price increases in Reno, Nev., where the average home in the top 5 percent of the market was selling for $1.28 million – a 35.4 percent increase from the previous year. Average luxury home prices rose 25.4 percent to $1.7 million in Long Beach, Calif., and 25 percent to $1.3 million in Clearwater, Fla.

In other parts of Florida, however, an oversaturated luxury condominium market has driven down prices in the top 5 percent of the market. In Miami, the average luxury home sale price of $1.86 million was down 23 percent from the second quarter of 2016, even as the average price of $300,000 in the rest of the market marked a year-over-year increase of 7.9 percent. While the average price of $274,000 in the bottom 95 percent of the Delray Beach market was a yearover-year increase of 7 percent, the average luxury sale price of $2.3 million was down by 17.3 percent.