39% of homes in the US don't have a mortgage

The current real estate market is heavily favoring the ultra-wealthy, who are making record numbers of all-cash purchases of luxury homes. This trend is occurring in one of the least affordable housing markets in the U.S. in decades, effectively shutting out younger generations from homeownership.

It's been a challenging period for home sales overall. In June, new home sales declined and fell short of expectations following a 15% drop in May. Similarly, sales of previously owned homes have decreased for the fourth consecutive month.

However, there's a bright spot in the luxury home segment. Properties priced over $1 million were the only category to see sales increase in June, according to the National Association of Realtors. With mortgage rates around 6.8%, up from approximately 3% a few years ago, those requiring loans face high costs. The wealthy, however, can bypass these costs by paying in cash.

For instance, Jeff Bezos recently purchased three properties on Indian Creek Island for a total of $237 million. Luxury real estate agent Lisa Rooks Morris noted that buyers in this market are not concerned about financing, as they tend to pay in cash.

This surge in high-end buying is benefiting luxury home builders. Toll Brothers Inc. reported better-than-expected orders in the second quarter and raised its full-year delivery forecast. Its stock has risen by about 160% since early 2023, making it one of the top performers in the S&P Midcap 400 Index.

Historically, higher-priced homes are the first to be affected by rising interest rates, but this isn't happening now. High home equity and a strong stock market have provided a buffer for wealthier Americans. By the end of the first quarter, 45% of high-end homebuyers in the U.S. were paying all cash, the highest rate in at least a decade, according to Redfin. They are funding these purchases with robust stock portfolios, sales of commercial real estate, and inherited wealth.

Last May, Beyoncé and Jay-Z bought a $200 million mansion, the most expensive home ever sold in California, while Laurene Powell Jobs purchased a $70 million mansion on Billionaire's Row in San Francisco, setting a new high for the city.

Meanwhile, entry-level buyers are struggling as their savings haven't kept pace with inflation. For lower-income borrowers, the challenges extend beyond high mortgage rates; getting approved for loans is difficult as credit card and auto loan delinquencies rise. The divide in the housing market reflects a broader economic disparity, as asset values increase while many people are just getting by.

Wealthy buyers are returning to pandemic boomtowns like Black Diamond, Washington, near Seattle. At Toll Brothers’ Regency at Ten Trails, home prices start at $600,000, but the most popular models exceed $1 million, with more than half of buyers paying in cash, according to sales agent Kristi Brewer.

While there's a clear need for affordable housing, rising costs for land, labor, and materials pose challenges. Houston-based David Weekley Homes, one of the largest privately held builders, is finding it difficult to produce homes for under $400,000, according to its president, Chris Weekley. The struggle is to balance affordability with the realities of the current market.