High-end home prices got kicked out of the penthouse in early 2019, falling for the first time in nearly three years, according to a report by real estate brokerage Redfin.
The average price of a luxury home sold in the first quarter was $1,550,000 nationwide, down 1.6 percent from a year ago, Redfin reports. In Boston, the average luxury home — defined as the priciest 5 percent of listings — sold for $3,219,000, down 22.4 percent from the first quarter of 2018. That was the biggest drop in the country.
Redfin chief economist Daryl Fairweather said that while the overall market has lost a bit of steam, lower-priced homes are still selling quickly and getting multiple offers, with prices in the rest of the market up 2.7 percent year over year. “It’s the higher-priced homes that have really taken the hit,” she said, partly due to tax reform. “You can’t deduct as much of your mortgage interest anymore or your local taxes, which is particularly an issue in states like Massachusetts.”
However, Fairweather said, the big plunge was specific to the city of Boston. “What’s interesting is the surrounding areas are more following the national trend; they’re not declining as much,” she noted.
While full-service condo developments have dominated the city’s luxury market in recent years, median condo prices in Boston fell 2.4 percent in the first quarter of 2019 from the year prior, from $617,000 to $602,000, according to the Greater Boston Association of Realtors. Sales of condos were down 11 percent, too. Meanwhile, single-family homes in the city of Boston saw both sales and median prices rise more than 5 percent year over year. “It’s condos that tend to do the worst in a downturn; they’re the most sensitive in terms of demand,” Fairweather said. “When demand slows down, people still want that perfect house with the picket fence.”
But the luxury market tends to march to the beat of its own very wealthy drummer. “That sector of the market operates very differently from the general market,” said Debra Taylor Blair, founder and president of LINK, a Boston-based real estate information service that tracks the condo market.
For example, many new luxury units are sold directly through the developer, and therefore don’t get listed or recorded by any Multiple Listing Service. That and a different methodology may explain a discrepancy between the Redfin report and LINK’s data, which showed the average selling price of a Boston condo in a full-service building to be $2,700,000 in the first quarter — a 17 percent increase over last year. The median (or midpoint) price was down 5 percent, however, to $1.7 million.
When examining such a small slice of the market, where a handful of blockbuster sales can move the needle dramatically one way or the other, some choppiness is to be expected. The two data sets are also measuring different things: Redfin analyzed the most expensive 5 percent of all homes, while the LINK data was focused exclusively on full-service luxury buildings and would not include, say, a Back Bay brownstone.
David Green, a luxury agent with Douglas Elliman Massachusetts, said this spring was a little slower overall compared with past years. “Obviously the weather hasn’t been helping us too much, with 26 days of rain in April,” he said. But Green thinks the luxury market dip has more to do with timing — specifically, a temporary lull between sales bursts at major high-end developments.
Last year, more than a hundred condo sales closed at 50 Liberty in the Seaport, Green said. That and Pierce Boston — the 109-unit Fenway development that accounted for nearly one of every six ultra-luxury condo sales in the city in 2018 — likely skewed the year-over-year comparisons. Meanwhile, Green said, about 150 units have already been pre-sold in the new EchelonSeaport development, but the sales won’t hit the books until they close in November.
“I think you’re going to see a big bump coming up with Pier 4 closing, they’re starting their closings next week, so you’re going to have 70, 80 closings scattered out through May and June into July,” Green said. Sales at One Dalton in the Back Bay will start to close in the coming months as well, he added. “I think our picture for the next two, three, four months is actually going to be very, very good for Boston.”
While limits to mortgage interest and local tax deductions may make some luxury buyers think twice about purchasing a multimillion-dollar property, others are unfazed. “We’re also seeing a lot of cash buyers, where that mortgage deduction doesn’t even come into play,” Blair said.
In fact, Blair said, demand still outstrips supply at this end of the market, even at prices that look more like phone numbers than home values. “Most luxury buildings are pre-sold or close to pre-sold when the building opens,” she said. “That really speaks to the demand. It’s crazy.”