Growth in million-dollar home sales is slowing in areas including Miami, Las Vegas and Los Angeles, as rising prices and the strengthening U.S. dollar discourage foreign investors who helped lead the recovery.
In seven investor-heavy markets – the Los Angeles, Riverside and Ventura areas of Southern California; Las Vegas; and Florida’s Fort Lauderdale, Miami and Orlando – sales of homes for $1 million or more rose 5 percent in the third quarter from a year earlier, compared with a 46 percent surge in the same part of 2013, data compiled by brokerage Redfin Corp. show.
Luxury sales, which have been outpacing the total market, are beginning to slow in many of the areas most dependent on investors and other cash buyers. Foreign shoppers are now facing a weakening global economy, less favorable exchange rates and higher U.S. home values.
“International investors and domestic investors were the first to jump into the luxury market,” Nela Richardson, chief economist at Seattle-based Redfin, said. “Now those folks who like to buy low and sell higher, or rent higher, their demand is waning. They’ve bought their fill.”
In Las Vegas, sales of more than $1 million fell 11 percent after a 69 percent jump a year ago, and in Miami the transactions were little changed after South Americans and Russians contributed to a 36 percent jump a year ago.
The U.S. dollar has strengthened against all of its 16 major peers in the past 12 months on optimism that faster economic growth will allow the Federal Reserve to raise interest rates next year. It’s rallied 29 percent against Argentina’s peso and 27 percent against the Russian ruble. The dollar’s also gained 11 percent against Brazil’s real, 3.2 percent against the pound and 8.3 percent against the euro.
Redfin, which collects data for mostly urban markets, said that million-dollar sales for the U.S. rose 9 percent from a year earlier, compared with a 42 percent jump in last year’s third quarter, while deals for homes of all prices fell 1.2 percent.
South Florida’s new luxury condominium towers have added supply to the market and encouraged owners of existing condos to list properties for high prices, said Peter Zalewski, principal of CraneSpotters, a Miami-based real estate consulting firm. In coastal Miami-Dade, Broward and Palm Beach counties, the average pre-construction price for the lowest-cost units available for sale was almost $1.8 million.
While the price per square foot for a million-dollar condo in South Florida rose 9.7 percent in the third quarter, sales declined 6.2 percent from a year earlier, Zalewski said. In the third quarter of 2013, high-end transactions were up 22 percent.
“If the domestic buyer doesn’t step in. I wouldn’t be surprised to see the market stall,” Zalewski said. “It’s becoming too expensive for foreigners to buy in South Florida at the same pace as previous years. Foreign currencies are weakening against the dollar, and local real estate prices are on the rise. It’s creating a perfect storm to push the foreign buyers away, or limit what they can acquire.”
For the seven areas identified by Redfin, cash purchases fell to 22 percent of transactions from 42 percent a year earlier. In Miami, the share fell to 47 percent from 59 percent, and in Las Vegas it plunged to 37 percent from 52 percent.
Cash deals in the Las Vegas area have dropped in part because investors that helped revive the market by purchasing single-family homes after the crash have pulled back, said Kolleen Kelley, president of the Nevada Association of Realtors. Not only were investors buying low-priced homes to rent out, some were purchasing high-end foreclosures and reselling them for a profit, she said.
“We don’t have big diversified economy here,” Kelley said. “When the market starts slowing down, it really starts slowing down.”
