The Texas Squeeze: A series examining the high cost of high growth in North Texas.
Significantly higher mortgage rates can be devastating to first-time homebuyers with tight budgets for monthly payments, but some buyers in the luxury home market are starting to pull back, too.
The number of luxury home sales in the Dallas area, excluding Fort Worth, fell 28% in the three months ending in May, according to a recent report from Redfin. The company defines luxury as the top 5% of home sales in each market based on value.
In the previous period that ended in April, high-end home sales fell 34% — their sharpest decline since the pandemic began. The Dallas area saw the third-largest decrease in luxury sales in the nation in that period, behind Nassau County, NY, and Oakland, Calif.
National luxury home sales declined 18.7% year over year in the three months ending in May, the largest drop since the start of the pandemic, Redfin found.
Rodney Anderson, a mortgage lender with Supreme Lending, said that while higher mortgage rates hit hardest for people who are buying a home for the first time, the stock market’s fall in recent weeks is contributing to hesitation in the higher end.
“Even the upper-end buyers could be pulling back a little because their incomes are more bonus-driven and commission-driven, and they’re more market-driven stock because they have larger assets,” Anderson said.
Luxury inventory is also down 8%, the first single-digit percentage decrease since fall 2020, according to Redfin.
Sheharyar Bokhari, a senior economist for Redfin, said he expects price growth to continue to slow throughout the rest of the year and eventually decline. In the Dallas area, luxury home prices have stayed flat at a median $1.35 million over the last few months.
“You’ll see gradual price declines as really aggressive buyers fall out and competition also eases, because this period of having five offers on a home in two weeks is going away,” he said.
People who previously looked at $1 million homes may now be looking for closer to $800,000, creating more demand at that lower price point, Bokhari said.
Not all luxury buyers are created equal. The impact of mortgage rates differs in certain sectors of the market and in specific neighborhoods.
Jonathan Rosen, a real estate agent for Compass, said buyers looking for homes priced from $1.5 million to $2 million are more likely to rethink their decisions based on the rates than buyers at higher price points, and more inventory is becoming available in that range.
“You’re still seeing multiple offers,” Rosen said, adding that the cooling market could make it more difficult for certain properties to sell over others. “It’s honestly so house-specific. If it is a good-quality home, you’re seeing still a lot of people interested.”
Dallas’ most prestigious neighborhoods such as Highland Park, University and Preston Hollow face Park low inventory. There were just 23 homes listed for sale with real estate agents in Highland Park and 14 in University Park at the end of May, according to the Texas Real Estate Research Center at Texas A&M University.
Harrison Polsky, an agent with Douglas Elliman Real Estate and principal of construction company Catena Homes, said his new luxury homes inside the Interstate 635 loop are selling as they are being framed.
He said delays due to supply chain issues and the city permitting process have pushed projects that would have taken 10 to 12 months before the pandemic to as long as two years, fueling the shortage in these neighborhoods amid continued demand from wealthy buyers wanting to be close to private schools.
Buyers “just want to lock something in,” Polsky said. “They’re not even waiting for a house to be completed.”