In the fourth quarter of 2018, luxury home prices increased 4.7% year over year to an average of $1.78 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 decreased 3.9%, marking the first time in more than two years that luxury home sales have fallen on an annual basis.

“The fact that sales of high-priced homes declined as their prices grew at a relatively strong rate can be explained in part by the basics of supply and demand,” Redfin writes. “Compared with a year earlier, there were 6.5% fewer $2 million-plus homes on the market last quarter, the seventh quarter in a row inventory of luxury homes has dropped annually.”

Redfin Chief Economist Daryl Fairweather explained economic headwinds are responsible for the decline.

“In the fourth quarter of 2018 there was a lot of economic uncertainty – mortgage interest rates peaked in November, and the stock market was all over the place,” Fairweather said. “This may have encouraged luxury sellers to hold on to their real estate assets and also caused luxury buyers to be reluctant to make major home purchases.”

“There’s also economic uncertainty abroad,” Fairweather continued. “For example, China’s economy slowed down at the end of 2018, which may be affecting a segment of U.S. luxury sellers and buyers whose wealth is invested overseas.”

Furthermore, Fairweather noted that when examining the most expensive segment of the housing market nationwide, a disproportionate amount of the movement seen in prices and sales is driven by activity.

In fact, in Q4, luxury homes went under contract after an average of 74 days on the market, nine more days than in the third quarter of 2018, according to the report.

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

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

• West Palm Beach, Florida increased 35%
• St. Petersburg, Florida increased 30.7%
• Reno, Nevada increased 24%
• Boca Raton, Florida increased 23.9%
• San Diego, California increased 15.2%

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.