44% Of Luxury Homes Bought With Cash – But This 0.5% Fed Rate Cut Could Raise Luxury Home Prices By $110k, Here's How

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The Federal Reserve slashed interest rates by half a percentage point on Wednesday, marking the first rate cut in years. The benchmark federal funds rate now ranges between 4.75% and 5%.

While nearly half luxury home purchases are made in cash, that rate cut is poised to impact the high-end housing market. Industry experts anticipate a surge in confidence and activity across all property segments, with potential price increases in top-tier real estate.

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President and CEO of Berkshire Hathaway HomeServices EWM Realty in South Florida, Ron Shuffield, views the rate cut positively. "The drop in the Fed rate today is good news for everyone,” he told Mansion Global.

"While high-end buyers often don't have a traditional home mortgage, everyone is impacted by changes in interest rates – whether in their home mortgage, their business financing, their personal life or in lines of credit they roll in and out of – all of which are based on interest rates," Shuffield said.

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Lower rates are expected to have the most pronounced impact in the middle and lower segments of the housing market, where traditional financing is more common. However, the luxury market is not immune to their effects.

According to Freddie Mac, mortgage rates have already declined, reaching 6.2% as of Sept. 12, the lowest since February 2023. This downward trend will likely continue in response to the Fed’s decision.

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Ian Slater, a New York City-based agent with Compass, noted the real estate community’s excitement about the rate cut. “Now that we know the Fed has cut a large amount, 0.5% rather than what some expected to be 0.25%, there is even more exuberance,” Slater said.

Despite the prevalence of cash purchases in the luxury market, Redfin reports that 44% of luxury home purchases were made with cash in the second quarter. The rate cut is expected to boost market sentiment. Slater predicts “a continued robust luxury market throughout the remainder of 2024 and potentially even more strength in 2025.”

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Lower mortgage rates’ effects on buying power are more striking in high-priced metro areas. In California’s San Jose metro area, where the median listing price hit $1.4 million in August, a hypothetical drop in mortgage rates to 5.5% could increase buying power by $110,000, according to Realtor.com data cited by Mansion Global.

Matthew Lesser, senior partner at New York City brokerage Leslie Garfield, believes the rate cut will catalyze market activity. “Historically, this should lead to greater transaction volume and therefore push pricing because of the increased demand,” Lesser said.

Even for all-cash buyers at the top end of the market, the rate cut has indirect benefits. “These buyers use leverage in their daily lives, whether for their own businesses or investments,” Lesser said. Cheaper money will raise consumer confidence and provide greater opportunity to buy more real estate.

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