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There has been a significant slowdown in the market for luxury real estate. At least for now, the rich might not move out of their McMansions.
Jefferies released new research on Monday that showed the median price of a luxury home (one that sold for more than $2.5 million) in 15 key markets went up 6% year-over-year in January.
This was a “steep” slowdown from December when prices went up 20%.
Jefferies’ research showed that Park City, Utah, was one of the luxury housing markets that was getting more and more difficult. In January, the median price of a luxury home sold fell by 30%.
This was the second straight monthly drop after a 6% drop in December.
In January, the median price of a luxury home sold for 23% less than what it was listed for. This was a bigger discount than in November and December. The number of days on the market for luxury homes that cost more than $2.5 million is at a new multi-year high of 61, compared to 37 in January 2022.
Jefferies says that the luxury home market is being hurt by a number of things, such as much higher interest rates and more layoffs in the tech industry.
“Data from March 2023 show that investment bank bonuses fell by 30–50%,” said Jonathan Matuszewski, an analyst at Jefferies. “Middle-level professionals in private equity are down about 33%.”
Matuszewski used the scary results to downgrade the stock of luxury home goods store RH from buy to hold.
Matuszewski said, “We are downgrading to hold because the luxury housing market is having trouble stabilising, and corporate cuts to headcount and pay haven’t yet spread to the luxury home furnishings category.” “The current multiple is about the same as other luxury peers, and there is more risk vs reward going into the ’23 guide, so we’re staying out of the market.”
Before the market opened, RH shares went down a little bit. The downgrade comes after RH CEO Gary Friedman gave several warnings about the luxury housing market.
Friedman told analysts on a December earnings call, “I think the housing market has collapsed.” “As interest rates have gone up, they have gone down pretty quickly. There is just a lot of doubt right now. But there is one thing I know for sure: The housing market is falling at a rate I haven’t seen since 2008. Since 2008, I haven’t seen a drop like this.”
