Rise in cash purchases driving luxury home price gains

LOS ANGELES — Wellheeled home shoppers are increasingly paying cash, helping turbo-charge price gains for the most expensive U.S. homes.

The median sale price of luxury homes, or those valued in the top 5 percent of the market nationally, hit an all-time high $1.23 million in the first quarter, an increase of 8.7 percent from the same period last year, according to an analysis by Redfin.

By comparison, the median sale price of non-luxury homes, or those in the middle-third of the market based on their estimated value, rose 4.6 percent from a year ago to $345,000, according to the report. Redfin didn’t factor in price trends for homes with an estimated value in the bottom third of the market.

Rising mortgage rates have discouraged many would-be homebuyers and kept the U.S. housing market mired in a slump for most of the past couple of years.

Despite easing from a 23year high of 7.79 percent in October, according to mortgage buyer Freddie Mac, the average rate on a 30-year mortgage has been hovering around 7 percent this year. That’s still more than double the average rate’s pandemic-era lows.

When mortgage rates rise, they can add hundreds of dollars a month in costs for borrowers, limiting how much they can afford at a time when the U.S. housing market remains constrained by relatively few homes for sale and rising home prices.

While elevated mortgage rates have limited the pool of prospective homebuyers in the broader housing market, demand for high-end homes has held up better than for middle-of-the-road properties.

Sales of luxury homes rose 2.1 percent in the first quarter versus a year earlier, while sales of properties in the middle-third of the market fell 4.2 percent, according to the report.

One reason for the diverging sales data is that wealthy home shoppers are more likely to have the financial flexibility to bypass financing hurdles by paying in cash.

The trend is helping accelerate the growth in home sale prices among the most high-end homes at a faster clip than less expensive properties.

Some 46.8 percent of luxury homes were bought entirely with cash in the three months ended Feb. 29, according to Redfin. That’s the highest share of all-cash luxury home purchases in at least a decade, and it’s up from 44.1 percent from a year earlier.

Prices for the most expensive homes have kept climbing even as the inventory of high-end properties has increased sharply this year. All told, the number of luxury homes on the market jumped 12.6 percent in the first quarter compared to a year earlier, while new listings surged nearly 19 percent, Redfin said.

In contrast, the inventory of homes in the middle-third of the market fell 2.9 percent in the January-march period from a year earlier.

Mortgage rate update

The average long-term U.S. mortgage rate climbed this week to its highest level since late November, another setback for home shoppers in what’s traditionally the housing market’s busiest time of the year.

The average rate on a 30-year mortgage rose to 7.17 percent from 7.1 percent last week, Freddie Mac said Thursday.

A year ago, the rate averaged 6.43 percent.

Borrowing costs on 15year fixed-rate mortgages, popular with homeowners refinancing their home loans, also rose this week, lifting the average rate to 6.44 percent from 6.39 percent last week. A year ago, it averaged 5.71 percent, Freddie Mac said.

The average rate on a 30year mortgage has now increased four weeks in a row.

The latest uptick brings it to its highest level since Nov. 30, when it was

7.22 percent.