According to Redfin, the average sale price for U.S. luxury homes nationwide rose 4.7 percent annually to an average of $1,772,000 in the fourth quarter of 2018. That's on par with the annual growth seen in the second quarter of last year and up from a 3.2 percent growth rate in the third quarter.
In the other 95 percent of the market, prices grew 4.3 percent to an average of $341,000 in the fourth quarter.
The typical luxury home that sold in the fourth quarter went under contract in 74 days, down from 78 days during the same period in 2017. Compare that with non-luxury homes: Homes that sold in the final quarter of 2018 took 56 days to go under contract, down from 63 days in the fourth quarter the year before.
Sales and Supply of $2 Million-Plus Homes Decline
Sales of homes priced at or above $2 million dropped 3.9 percent annually in the fourth quarter. That's the first time in more than two years sales of luxury homes have fallen on a year-over-year basis.
The fact that sales of high-priced homes declined as their prices grew at a relatively strong rate can be explained in part by the basics of supply and demand. Compared with a year earlier, there were 6.5 percent fewer $2 million-plus homes on the market last quarter, the seventh quarter in a row inventory of luxury homes has dropped annually.
Supply of homes priced under $2 million, meanwhile, has been on a steady upward trend since the beginning of 2018.
While domestic and global economic uncertainty may have put a bit of a damper on demand for luxury homes, the decreased supply was enough to continue to push prices up at a strong but sustainable rate just below 5 percent annually.
"In the fourth quarter of 2018 there was a lot of economic uncertainty--mortgage interest rates peaked in November, and the stock market was all over the place. This may have encouraged luxury sellers to hold on to their real estate assets and also caused luxury buyers to be reluctant to make major home purchases," said Redfin chief economist Daryl Fairweather. "There's also economic uncertainty abroad. For example, China's economy slowed down at the end of 2018, which may be affecting a segment of U.S. luxury sellers and buyers whose wealth is invested overseas."
Fairweather continued, "Finally, it's worth noting that when we're examining the most expensive segment of the housing market nationwide, a disproportionate amount of the movement seen in prices and sales is driven by activity--or lack thereof-- in major expensive coastal markets like San Francisco and San Jose, where sales fell by double digits while price growth slowed or reversed at the end of the year."
Biggest Luxury Home Price Gains
Cities in Florida experienced some of the biggest increases in luxury home prices. In West Palm Beach, the average sale price for the top 5 percent of homes sold in the fourth quarter was $1,628,000, up 35 percent from the year before, and in St. Petersburg luxury prices shot up 30.7 percent to $1,427,000.
"When I moved to St. Petersburg in 2006, it had a quiet downtown with one block of shops and restaurants and a very short list of luxury condo buildings--most of which were built before 1980," said Redfin agent Brian Walsh. "As the town has grown, it has become known for its walkability, an exploding restaurant and nightlife scene and a beautiful waterfront, all of which makes it uniquely positioned to become the jewel of the Gulf Coast."
"Now that the secret's out, folks who have money to burn are flocking to St. Petersburg," Walsh continued. "A few new luxury buildings have recently gone up, and spec builders are tearing down older, smaller homes and building large, modern properties that fit in beautifully with the aesthetic of the city."
Biggest Luxury Price Decline Markets
Florida cities also dominate the list of places where luxury home prices have dropped the most. Sarasota clocks in at number one with an average luxury price of $1,760,000, down 30.7 percent annually. That's followed by Fort Lauderdale, where the average luxury home went for $2,689,000, down 26 percent from the year before.