A once unstoppable luxury housing market is starting to crack

The number of luxury-home sales nationwide dropped 0.7% during the three months ended Aug. 31, compared with the same period last year, according to data from real-estate brokerage Redfin, which said luxury sales nationwide dropped to the lowest level for that period since it began tracking the market in 2013.

Price growth also slowed. During the three months ended Aug. 31, the median sale price for luxury properties—defined as the top 5% of the market—increased 3.9% year over year to $1.25 million, according to Redfin. But that is down from a 6.1% year-over-year price jump for the three months ended Aug. 31, 2024.

The Westlake estate has nearly 13,600 square feet of living space, between the main residence and a detached apartment.There are two outdoor pools separated by a waterfall feature.

“The luxury market seems to be weaker than the rest of the housing market right now—which is already pretty weak," said Chen Zhao, head of economics research at Redfin, citing a 0.6% drop in nonluxury sales during the period, compared with the luxury market’s 0.7% drop. “It kind of speaks to the economic uncertainty of the moment and some of the volatility we’ve experienced."

For the past few years, luxury homeowners, who are less impacted by interest rates, have propped up the housing market with discretionary purchases. Following the tariff shock of early April, however, buyers and sellers across the spectrum saw dramatic swings in household wealth that took a toll on spring and summer purchasing.

As inventory rises and prices stay flat in the Dallas-Fort Worth area, buyers are scrambling to find a house before interest-rate cuts boost prices. A $4.999 million spec house in Fort Worth went into contract within days of hitting the market.

“This injected a substantial hesitancy to make large financial decisions among many prospective luxury-home buyers and sellers," said Patrick Carlisle, Compass’s chief market analyst in the San Francisco Bay Area, where August home sales above $5 million dropped 13% from August 2024.

“Buyers are being cautious about their investments," said Kim Bedwell of Briggs Freeman Sotheby’s International Realty in Dallas, who said there are more $5 million-plus homes on the market in the city’s affluent suburbs than she has seen in a while.

Luxury prices, which became “overinflated" during Covid, are returning to prepandemic norms, said Bedwell. In August, she sold a roughly 13,600-square-foot home in Westlake, a suburb of Dallas-Fort Worth, that was last asking $10.995 million, down from the original asking price of $12.5 million in January. (Texas is a nondisclosure state, so sale prices are not public.) Buyers in the $2.5 million-plus range are not rate sensitive, said Bedwell, “but they’re also not willing to overpay."

Nationally, Redfin found the number of luxury listings is on the upswing. During the three months ended Aug. 31, inventory rose 9.5% year over year to the highest level—for that time period—since 2020, Redfin data show. Nonluxury inventory rose 13.4% year over year.

The Fort Worth spec house is about 6,200 square feet.

Zhao said the market is experiencing a “bounceback effect" because inventory dried up during the Covid-era boom, and owners were holding on to properties because they had nowhere else to go. More recently, she said, life circumstances—such as relocation for a job, birth of a new baby, a divorce or death—could have forced some sellers off the sidelines. Others feel uneasy about the economy, and want to gain liquidity by selling real estate. “You’ll get very disparate stories when you hone in on individual markets," she said. “There’s no such thing as a national luxury market."

Where sales increased

Despite the national drop in luxury sales, for example, luxury home sales have increased in markets such as Indianapolis, Ind., where sales rose 19.1% year over year, and Fort Worth, where sales were up 14% year over year. The median luxury sale price in Indianapolis was flat while listings rose 16.1% year over year; in Fort Worth, the median luxury sale price rose 0.2% year over year while listings jumped 25.7% over the same period.

The popularity of places like Carmel, Ind., have boosted luxury sales volume in the Indianapolis area.

“Our luxury market is the busiest it’s been," said longtime Indianapolis real-estate agent Bif Ward of the F.C. Tucker Co., citing the popularity of places such as Carmel, about 20 miles north of Indianapolis, which has been dubbed the internet’s favorite small city.

A 1930s home in Indianapolis is listed for $3.4 million.In Indianapolis, the median number of days on market for luxury homes was 16 for the three months ended Aug. 31.The Indianapolis house is roughly 7,500 square feet with original hardwood floors and leaded glass windows.

Even properties at the very top of the luxury market—asking $10 million or more—are selling faster than they ever did, according to agents in the area. An estate in Carmel owned by the late Indianapolis Colts owner Jim Irsay sold for $11.75 million in September, closing just two months after it was listed for $12 million. Ward said one of her clients planned to fly in to see the property three days after it hit the market, but it was already under contract by then so they never came.

Where low inventory is hobbling deals

In Miami, low inventory has had a chilling effect on the luxury market, contributing to the market’s decline in sales, local real-estate agents said. Although the median luxury sale price rose 9.8% year over year to $4.2 million during the three months ended Aug. 31, sales dropped 19.4% year over year, Redfin data show.

The Corcoran Group’s Julian Johnston recently had plans to meet with two prospective buyers from California, each looking to spend $20 million to $40 million. He only had about a dozen properties to show them that met their criteria, he said.

Continuing low inventory is fueling price gains in the Miami area. Owners of a house in Miami Beach, who paid about $24 million in 2024, have received offers in the $30 million range.

Prices for available properties are climbing. Last year, Johnston sold a roughly 8,300-square-foot waterfront property for $23.9 million. The owner is fielding so many offers that Johnston is getting ready to list it for $32 million.

The Miami Beach mansion has stone, wood and glass finishes.The waterfront home has 25-foot ceilings.

Where inventory is rising

Several cities are tracking closely with the national trend of higher inventory. In Fort Worth, luxury listings rose 25.7% year over year, while listings were up 25.4% in Tampa, Fla., and 20.5% in San Antonio.

In Tampa, the luxury market was impacted by last year’s Hurricane Helene, which damaged some waterfront homes, said local real-estate agent Toni Everett. Luxury sales during the three months ended Aug. 31 dropped 9.4% year over year while the median luxury sale price dipped 5.5%, according to Redfin.

Luxury sales in Tampa, Fla., dropped after hurricanes Helene and Milton in 2024.

Everett said one of her clients listed a waterfront home for $6.125 million before Helene made landfall in September 2024; she cut the price to $5.65 million but is only getting offers between $3.5 million to $4.5 million.

Following the Federal Reserve’s September interest-rate cut, agents predict increased sales activity. Fort Worth real-estate agent John Zimmerman of Compass said his buyers are scrambling to make deals before inventory drops again and prices escalate. Recently, he listed a $4.999 million spec home in the Colonial neighborhood that fetched a full-price offer within two days.

Write to E.B. Solomont at eb.solomont@wsj.com