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The nation's priciest properties are in far less demand this year, and that is taking a toll on their values. Sales of homes listed at $2 million and above fell 16% in the first quarter, the sharpest annual decline since 2010, according to Redfin, a real estate brokerage. This as the supply of those homes rose 14%, marking four straight quarters of annual increases in inventory.
The average price of a 'luxury' home, which Redfin defines as the top 5% in each of the 1,000 cities it tracks, fell 1.6% to $1.55 million. Nonluxury homes saw their average price rise 2.7% annually to $300,000.
Demand for high-end homes is waning in large part due to changes in tax law. The amount of state and local taxes that homeowners can deduct was capped at $10,000, and the mortgage interest deduction was reduced from $1 million to $750,000 in mortgage debt.
"Not only do the new rules make it less desirable to purchase a multi-million dollar home in high-tax states, it has also motivated some people—especially those with big incomes and big housing budgets—to consider moving to places like Florida, Washington or Nevada, which have no state income tax," wrote Redfin's chief economist, Daryl Fairweather, in a release.
The shift in the luxury market has been more pronounced, therefore, in certain metropolitan markets. The average luxury sale price fell hardest in Boston (-22.4%), Newport Beach, California (-21.8%), and Miami (-19.3%). Miami's drop may have been less about tax changes and more about overbuilding on the luxury end in recent years that has led to an oversupply of high-end homes for sale.
In Greenwich, Connecticut, home to the chiefs of some of the nation's largest hedge funds, it is all about taxes.
"It can be significant," said Jonathan Miller, CEO of Miller Samuel, a real estate analytics and appraisal firm. "You're looking at 5, 6, 7 million-dollar properties that pay $100-$125,000 a year in taxes, and now you can only write off $10,000. What that does is impact value but it takes a while for buyers and sellers to agree on what that value is."
Greenwich sales in the first quarter of this year were down 25% compared with a year ago. The median price fell 17% to just over $2 million, according to Miller Samuel. The average number of days homes sat on the market before selling rose to 214 and there is now a two-year supply of Greenwich homes for sale.
"It's a great buy right now, so my buyers are getting awesome deals," said Jennifer Leahy, a real estate agent in the area with Douglas Elliman. "I had a buyer who bought a house for $6.6 million that was on for $8.25 million, I have a buyer who got a house for $750,000 that was on for $900,000, so you get a deal in every price range right now."
Some luxury markets did see gains. In Charleston, South Carolina, luxury prices were up 42% annually to $2.3 million. In Boise, Idaho, prices rose 17% percent annually to $1 million.
The boom in Boise, according to some Redfin agents there, is due to sky-high prices in Denver, the San Francisco Bay Area and Seattle. High-income tech workers who can telecommute are seeking more affordable markets where they get more bang for their buck.