In the third quarter of 2018, luxury home prices increased 3.2% year over year to an average of $1.7 million, according to the latest data from Redfin.

Redfin classifies luxury homes as those that sold among the top 5% most expensive in the quarter.

According to the company, sales of homes priced at or above $2 million increased for the ninth consecutive quarter. However, this is the smallest rate of growth since early 2016.

Furthermore, the number of homes for sale priced at or above $2 million fell 6% year over year compared with one year prior.

Redfin Chief Economist Daryl Fairweather explained the reason behind this slow growth.

“A great deal of the slowing price growth among luxury homes can be explained by the stock market, a strong indicator of luxury homebuyers’ wealth, or at least their perceived wealth,” Fairweather said.“The stock-market fluctuations that began last quarter likely caused some uncertainty among wealthy individuals, which has made luxury buyers more sensitive to price.” 

“The swings many people have been watching in their stock portfolios have only grown more frequent in recent weeks, so we expect this trend of slowing luxury home price growth to continue at least into the end of the year,” Fairweather said. 

Luxury homes went under contract after an average of 65 days on market, eight fewer days than in the third quarter of 2017, according to the report.

Notably, this tied with the second quarter of 2018 as the fastest pace on record since Redfin began tracking this metric in 2009.

Interestingly, the market for non-luxury homes also sped up in the third quarter, with homes spending an average of 49 days on market. This is nine fewer days than 2017 and two fewer than in the second quarter of this year, according to Redfin.

“We have seen homes go under contract faster every year since 2015. Buyers are able to look at more homes more quickly in part thanks to real estate technology,” Fairweather said.

The report indicates that cities in Florida, Nevada and Illinois experienced the largest increases in luxury home prices in the third quarter.

Here are the top five areas that saw the largest increase in luxury home prices:

• West Palm Beach, Florida increased 54.5%
• Reno, Nevada increased 29.6%
• Boca Raton, Florida increased 26%
• Miami, Florida increased 22.5%
• Chicago, Illinois increased 19.2%

“There are a lot of people selling average/modest multi-million-dollar homes in the Bay Area and buying true luxury homes in Reno,” Redfin agent Jaime Moore said. “Buyers coming from the Bay Area find themselves with strong purchasing power and are able to easily afford luxury homes in Reno.”

Here are the top five areas that saw the largest decrease in luxury home prices:

• Vero Beach, Florida decreased 46.1%
• St. Petersburg, Florida decreased 16.8%
• Fort Lauderdale, Florida decreased 16.4%
• Sarasota, Florida decreased 8.4%
• Delray Beach, Illinois decreased 8.3%

Redfin also pointed out that, although the decline in inventory inched close to zero in the second quarter of 2018, it retreated in the third quarter. Furthermore, inventory of homes priced under $2 million increased slightly this quarter, but the luxury market is still seeing a decrease in the number of homes for sale compared to a year earlier.

NOTE: This report is based on multiple-listing and county recorder sales data in markets served by Redfin. For inventory and sales, Redfin analyzed homes priced at or above $2 million that were sold in the third quarter of 2018.