Mortgage Rates Hurt the Housing Market. It’s Been a Different Story for Million-Dollar Homes

Daryl Fairweather, Redfin’s chief economist, chalked up the disparity to 8% mortgage rates that have roughly doubled since last year, rewarding buyers who don’t need to finance their purchases. 

According to Redfin, 42.5% of luxury buyers paid cash during the third quarter, compared with 34.6% during the same period a year ago. Some 28% of nonluxury homes sold for cash during the third quarter of this year and last. “If you can avoid mortgage rates in this market, you have a kind of superpower,” Fairweather said. 

In New York, Ryan Serhant of real-estate brokerage Serhant recently sold a townhouse on the Upper East Side to a cash buyer who paid $16.3 million, or roughly $300,000 over ask. Serhant said almost all of his deals above $10 million are cash. “It didn’t always used to be that way,” he said. 

Serhant said there is also a flood of foreign capital coming back to the U.S. because of geopolitical fears around the world. “You think inflation is bad here? Look around the world,” he said. He said he is now selling multimillion-dollar properties in the U.S., sight unseen, to purchasers from Europe, the Middle East and Asia.

According to Fairweather, luxury price growth nationwide is being driven by metros in the Northeast and Midwest that didn’t experience skyrocketing prices during Covid. For instance, the median luxury sale price in New Brunswick, N.J., rose 15.3% during the third quarter compared with the same period last year. That was the biggest jump, followed by Virginia Beach, Va., where the median luxury sale price rose 11% year-over-year and Baltimore, up 8.7% from the third quarter last year. “It’s these more affordable cities that weren’t the superstar cities,” Fairweather said. 

In Tampa, Fla., she said, buyers seeking more affordable alternatives to Miami have also boosted the number of sales, which jumped 35.8% during the third quarter compared with the same period last year.

Tampa real-estate agent Adriana Silver of Tomlin St Cyr Real Estate Services said she recently sold a roughly 7,400-square-foot waterfront home in Davis Islands, a neighborhood with views of downtown, for $10.8 million to a buyer from Miami. The seller was Yanni Gourde, a professional hockey player, and his wife, Marie Andrée-Raby, records show. The couple bought the lot for $4 million in 2021, but that year Gourde was traded from the Tampa Bay Lightning to the Seattle Kraken. Silver said the couple still completed construction of the six-bedroom house, which was finished this year. “Tampa still has a little bit of small-town charm,” said Silver, who said the city has a thriving restaurant and nightlife scene but is still family oriented. “For people that moved from up north, maybe Miami wasn’t the place for them,” she said.

In October, the 30-year fixed mortgage rate reached 8%, the highest in two decades and roughly double the rate in March 2022. High rates have caused gridlock in the overall housing market, as some sellers stay put rather than lose low mortgage rates. Meanwhile, some buyers have been priced out of the market because of high rates coupled with home prices that rose during Covid. 

Fairweather said in the luxury market, the standoff is easing somewhat as homeowners feel less locked into low mortgage rates and are able to weather higher rates. 

According to Redfin, luxury inventory rose 2.9% during the third quarter 2023 compared with third quarter 2022. In contrast, there was a 20.8% decline in nonluxury inventory during the same period. New listings during the third quarter rose the most in New York, where they jumped 17.1% compared with the same period last year, followed by Tampa, where listings during the third quarter were up 13.9% year-over-year, and San Antonio, where listings were up 12.7% in the third quarter, compared with the prior year period, Redfin data show. 

In South Florida, Michael Martinez of ONE Sotheby’s International Realty said seasonality has returned to the market, which didn’t slow at all during Covid. Over the past few weeks, he said snowbirds have come down for the winter, prompting market activity to pick up. Martinez recently sold a house in Pinecrest for $11.2 million that was listed for $12.5 million earlier year. He said 100% of his sales in October were cash deals, up from 66% in October 2022. 

Miami real-estate agent Nelson Gonzalez, from Berkshire Hathaway HomeServices EWM Realty, said a string of megadeals has also boosted the market, prompting sellers to act now to take advantage of the market. He estimated that the supply of properties priced at $10 million and above is up 17% from this time last year. But there are only a “handful” of finished homes priced at $40 million and up. Wealthy buyers who “have more money than time” are gravitating toward finished homes rather than properties that need work, he said. 

In October, Gonzalez listed a newly built mansion on North Bay Road in Miami Beach for $52.5 million, reduced from $76.5 million last year. Seller Ami Shashoua said the initial price was “outrageous,” but he wanted to test the market. Now that seasonal buyers are coming back, he put the property back on for a “realistic” price, he said. “This is the price it should be,” he said. 

In Los Angeles, where luxury sales slowed significantly after a new mansion tax was enacted in April, some agents said there is still hesitation in the market. Sales are happening but they are taking longer to close, said Jade Mills of Coldwell Banker Realty, who recently got multiple offers on a home she listed for around $20 million. “To some extent, people are sort of getting used to the ULA tax,” she said. 

New York real-estate agent Rachel Glazer of Compass said deals are getting done when realistic sellers come to terms with what buyers are willing to pay. She recently sold a four-bedroom condo at 70 Charlton, a new development in Hudson Square, that was first listed by developer Extell for $6.125 million in 2016, according to StreetEasy. Glazer sold it for $4.195 million. “There was a time when the sellers could say no, and it’s not that time,” she said.

Write to E.B. Solomont at [email protected]