U.S. luxury home prices surged in the first quarter as short supply affected even the top of the market, according to a report Monday from Redfin.
The average home price rose 7.9% to $1.8 million in the first three months of 2018, up from $1.658 million during the same period last year. The data, which looks at the top 5% of the market in 1,000 U.S. cities, showed luxury prices growing faster than the rest of the market.
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Outside of the luxury market, U.S. housing prices rose 7.5% in the first quarter to an average price of $330,000.
A nationwide housing shortage has forced prices up over the past year as a growing number of buyers vie for a shrinking pool of available homes.
More development of high-end housing had spared the luxury market from the same inventory shortfalls, and in cities like New York and Miami, even held prices down.
But the tide has started to shift, particularly in tertiary cities like Sacramento, California; Reno, Nevada; and Naples, Florida, where a shortage of luxury housing stock has pushed prices up by as much as 50%, Mansion Global has previously reported.
"We're seeing an influx of buyers from high-cost areas such as Seattle, San Francisco and Southern California," said Jaime Moore, a Redfin agent in Reno, in a statement from Redfin. "More companies are relocating here as the cost of living for the average employee has gotten too high in other cities. This is all leading many buyers to our area with larger pocketbooks than we have seen in the past."
Total luxury sales have fallen as buyers unable to find a home amid the shortage pull out of the market. Across 1,000 cities, sales over $1 million fell 20% in the first quarter compared to a year earlier. Sales of homes at or above $5 million dropped 19%.
The luxury market saw a slight uptick in bidding wars, with 1.5% of homes selling over asking price.
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The strength of the luxury market bucks predictions that the tax overhaul in December—which limited deductions for property taxes and interest on mortgages over $750,000—might discourage people from buying million-dollar homes, said Nela Richardson, chief economist of Redfin.
"Instead, this quarter saw the strongest luxury price appreciation in four years, demonstrating that the current inventory crunch is extremely broad-based and affects buyers at every price range," Ms. Richardson said.