America’s housing market is a nightmare for most, but the rich are sitting pretty. As aspiring homeowners lock themselves out, the wealthy are snapping up properties left and right.
It’s been a tough season for home sales. New home sales fell in June and missed expectations after a 15% drop in May. Sales of previously owned homes also fell for the fourth straight month.
But there is a glimmer of hope: luxury homes.
Properties priced above $1 million were the only category that saw sales increase in June, according to the National Association of Realtors. Why? With mortgage rates hovering around 6.8%, up from around 3% a few years ago, anyone who needs a loan is paying through the nose. But the rich, 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 with cash.”
This cash buying spree is fueling luxury home builders. Toll Brothers Inc. reported stronger-than-expected orders in second-quarter earnings and raised its full-year delivery forecast. Its stock is near a record high, up nearly 160% since the start of 2023, making it one of the best performers in the S&P Midcap 400 Index.
“Historically, higher-priced homes are the first to feel the hit when interest rates rise,” Zonda chief economist Ali Wolf told the paper. “We are not seeing that today. High home equity and a strong stock market have acted as a buffer against interest rates for wealthier Americans.”
By the end of the first quarter, 45% of U.S. high-end home buyers were paying all cash, the highest rate in at least a decade, according to Redfin. They finance acquisitions with fat stock portfolios, sales of commercial real estate and inherited assets.
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 difficult as credit card and car loan delinquencies rise.
The divide we’re seeing in the housing market reflects the broader economic divide, Nationwide senior economist Ben Ayers explained to Bloomberg. As asset values rise, many people are barely scraping by.
Well-heeled shoppers are returning to pandemic boomtowns like Black Diamond, Wash., south of Seattle. At Toll Brothers’ Regency at Ten Trails, home prices start in the $600,000s, but the most popular models top out at $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 is now an abundance of quality inventory. “Now you have time to think, shop and negotiate,” Morris told Bloomberg, something luxury buyers didn’t have during the pandemic bidding wars.
Homebuilders know that the need for affordable housing is urgent. But with the cost of land, labor and materials rising, it’s a tough nut to crack. Houston-based David Weekley Homes, one of the largest private homebuilders, is trying 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 danger, as we do this, is that the only way to get cheaper land is to go further. And that’s a riskier bet.”
Despite the challenges, the market for high-end homes remains strong. As of 2022, 39% of U.S. homes were mortgage-free, and many buyers are using cash, Zonda’s Wolf said.
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