Undaunted by rapidly rising mortgage rates, many rich Americans haven’t given up on their poolside pads and high-end condos just yet. Luxury home prices climbed 9% to hit $1.1 million, the highest third-quarter level ever recorded, reports Redfin. That’s almost three times faster than the price growth of non-luxury homes, which made it to a median $340,000 in the third quarter.

And while the overall housing market has been cooling thanks to a dwindling supply of affordable properties and mounting rates on home loans, the market for homes in higher price tiers has been chugging along relatively well.

“Wealthy homebuyers have more tools to weather the storm of high mortgage rates,” says Redfin senior vice president of real estate operations Jason Aleem.

Of course, their most powerful tool comes down to bucketloads of cash.

Affluent buyers have big cash cushions

Mortgage rates moving closer to 8% have pushed many middle-income Americans out of the housing market this year.

In the meanwhile, people who purchased homes and locked in 3% mortgage rates in 2020 and 2021 are now reluctant to sell, keeping inventory tight and prices high.

But some wealthy buyers can afford to sidestep high interest rates by shelling out the cash upfront. Bloomberg reported in September that the wealthiest 20% of Americans haven’t used up their excess pandemic savings just yet, citing Fed data.

And Redfin reveals over 42% of luxury homes were purchased in cash in the third quarter, up from 34.6% the same period last year.

The analysis defines luxury homes as those estimated to belong to the top 5% of their respective metro area based on market value, with non-luxury homes categorized as those estimated to be in the 35th to 65th percentile.

Other buyers could be opting for the riskier play: taking on a mortgage with a higher rate now, in the hopes they can refinance into a lower rate in the future—an option that many lower-income Americans can’t afford, Aleem notes.

“Affluent Americans are still spending big, in large part because of pandemic savings and resilient housing and stock values,” he explains.

While the supply of non-luxury homes for sale has shrunk by an alarming 20.8% since last year, active listings of luxury homes have risen nearly 3%.

There’s been a notable rise in homebuilding as well, with the number of housing starts rebounding in September by 7%, compared to the previous month, according to the latest government data.

Newly-built homes often fall into the luxury category, adding to its strong inventory.

But this trend might not last

Experts say some wealthy buyers could start pulling back if affordability conditions don’t improve.

“While many luxury buyers have the resources to forge ahead even when mortgage rates are elevated, stubbornly high rates and home prices will likely push some affluent house hunters to the sidelines in the coming months,” said Redfin chief economist Daryl Fairweather.

“High costs, along with the uptick in the number of high-end homes for sale, could cause luxury price growth to cool.”

And new construction could slow as well, with confidence among single-family homebuilders tumbling to a nine-month low in October due to ebbing demand, according to the National Association of Home Builders and Wells Fargo Housing Market Index.

“In the very short-term, single-family construction activity is likely to increase with permits rising in every month of 2023 thus far, but at some point mortgage rates are likely to put a lid on new construction activity for home purchase,” Conrad DeQuadros, senior economic advisor at Brean Capital in New York, told Reuters last month.

Redfin also notes that luxury home sales fell 10.6% in the third quarter compared to last year.

Although this figure is markedly smaller than the 17% plunge in non-luxury sales, it’s indicative that some wealthy buyers are already retreating in the face of high mortgage rates.