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A supply crunch is affecting markets across the country, as the mortgage rate lock-in takes control of the high end

Sellers are locked into low rates. Construction costs are about 40% higher than before Covid, putting a damper on new construction. Buildable land is getting ever more scarce.

These are just some of the reasons why some luxury housing markets nationwide are facing inventory crunches and high prices, despite an overall housing slowdown. From California to Connecticut, deep-pocketed buyers are competing over a limited supply of luxury homes, amid a historic decline in listings caused by long-term owners hanging on to properties and home builders failing to keep pace with population growth and demand. Since 2000, the average monthly number of active existing-home listings has dropped 45%, according to a recent report by Compass, which said the U.S. population has grown about 20% in that time.

As of Jan. 31, for example, the St. Louis metro area had a three-month rolling average of 1.73 months of luxury supply—defined as homes in the top 5% of the market—far below the roughly five months that is generally considered to be a sign of a healthy market, according to real-estate brokerage Redfin.

Meanwhile, in Oakland and San Jose, Calif., just 0.8% of the area’s total luxury housing stock was listed on average over the three months ended Jan. 31, according to Redfin, which analyzed luxury inventory in the 50 most populous U.S. metro areas for The Wall Street Journal. The average in the 50 metros was 2.56% during that time period, Redfin data show.

“The lack of supply almost perpetuates the lack of supply because sellers don’t have anywhere to go,” said Ken DeLeon of DeLeon Realty in California’s Bay Area.

Even though luxury buyers tend to be less rate-sensitive, the mortgage lock-in effect is pervasive, said Chen Zhao, head of economic research at Redfin. Some would-be sellers believe if rates come down, buyer demand will increase further, so they may be hanging on to homes until that happens. At the same time, owners whose property value skyrocketed in recent years may opt to keep the property rather than pay capital-gains taxes—unless they are motivated by life circumstances. “It’s very location specific,” Zhao said.

Here’s a look at five of the country’s tightest luxury housing markets based on levels of supply.

Las Vegas

For the three months ended Jan. 31, the Las Vegas metro area had an average of about 3.2 months of luxury housing supply—down 32.5% from the same period a year earlier. The supply-demand imbalance has driven prices up in recent years. The median luxury sale price was $1.2 million for the three months ended March 31, compared with $1.1 million for the prior-year period.

Despite the tight market, the number of luxury sales in Las Vegas jumped 38.67% for the three months ended Jan. 31 compared with the same period last year—the biggest year-over-year jump of the 50 biggest metros nationwide. However, its 2024 level was still far below sales activity recorded at the height of the pandemic between August 2020 and July 2022.

Real-estate agent Kristen Routh-Silberman of Douglas Elliman said Las Vegas has evolved from an entertainment mecca to a cultural destination that is also an attractive tax haven for well-heeled home buyers.

Routh-Silberman said the recent sale of real-estate developer Rich MacDonald’s personal residence in Henderson, Nev., typifies the market dynamic. The property was listed for around $5 million in 2011, but it didn’t sell. MacDonald put it back on the market asking $12 million in November 2023, and it closed for $10 million in March.

Routh-Silberman said that in February, there were about five months worth of luxury supply of homes priced at over $1 million, down from 10 months a year prior. (In 2022, there was roughly two years worth of supply.) She said there are also dwindling development sites for luxury homes in the area. “We want to get people to do specs and build more,” she said. “It now appears some big builders are going to flat-out build as much as they can right now to create some inventory.”

St. Louis

The St. Louis metro area had an average of just 1.73 months of available inventory over the three months ended Jan. 31, the lowest of the 50 biggest metros nationwide and below an average of about 3.3 months for those metros. “Scarcity is the No. 1 variable that is keeping prices high,” said Jeffrey Warner of Dielmann Sotheby’s International Realty. The median luxury sale price was $840,000 for the three months ended March 31, compared with $790,000 a year prior.

Warner said this spring, for every 10 offers his team writes for clients, they lose out on six of them. “There’s just so few homes,” he said. He recently marketed a teardown in Clayton for just under $1 million, and had a three-way bidding war before it was even formally listed.

He said there is little new development, and many sellers are locked into low interest rates. “Midwesterners are conservative. They’re not going to give up their 2% mortgage to buy another house,” he said. Erica Willert, also of Sotheby’s, said despite the low inventory, she recently helped clients find a home after a roughly 18-month search. The couple, who moved to St. Louis from California to be near their adult daughter, made “several offers” on $1 million properties but lost to buyers who outbid them. “These people were a little more conservative” and didn’t want to overpay, she said. “We eventually ended up finding a great home.”

Oakland and San Jose, Calif.

In the metros of Oakland and San Jose, a tiny fraction of luxury homes are making it to the market: For the three months ended Jan. 31, each metro had an average of just 0.8% of the area’s total luxury housing stock listed for sale, the smallest of the 50 biggest U.S. metros. In comparison, 6.3% of the total luxury housing stock in Miami was listed over the same period, the most of the 50 biggest U.S. metros.

Meanwhile, demand among tech employees and others is strong, particularly since a number of large companies called workers back to the office, said Compass’s Katharine Carroll. That has resulted in crowded open houses and bidding wars. In the San Jose metro area, the median luxury sale price was $4.7 million for the three months ended March 31, compared with $4.4 million in the prior-year period. In the Oakland metro area, the median luxury sale price was $2.85 million for the three months ended March 31, compared with $2.725 million in the prior-year period.

Carroll said she recently helped clients buy a house in Los Altos after nearly a year of looking. She said they submitted one of 12 offers on a property asking $4.275 million, and got the house for $5 million. “It blows my mind that there are 11 other people in that price range waiting for the next good, solid house option to come up,” she said.

Carroll’s colleague Michael Hall recently sold a house in Sunnyvale for $3.6 million. After listing it for $3.45 million, over 100 groups came through over the course of a weekend. The seller accepted a cash offer and closed in 10 days.

Agents said there is little new development, making turnkey properties that much more desirable.

DeLeon said he has a “record number” of luxury buyers, in part because many of them made money in the stock market over the past 12 months. One of his clients recently lost a bid for a property in Atherton that was listed for $24 million in February. Despite having title issues, it got multiple offers and went into contract within a month. “There’s been so much pent up demand,” he said, that clients are compromising on their wish list, forgoing an extra bedroom and taking on a renovation if necessary.

Atlanta

Since May 2023, Atlanta’s active luxury listings have been on the decline, along with a handful of the biggest 50 metros. For the three months ended Jan. 31, an average of 2.3% of the area’s total luxury inventory was on the market. Active listings over that period were down 8.7% year over year. In comparison, luxury listings in Austin—where the market has softened since its peak in 2022—rose 42.3% year over year.

Although Atlanta’s level of luxury inventory is relatively healthy—with about four months of supply on average for the three months ended Jan. 31—real-estate agent Bonneau Ansley said the luxury condo market is tight because of limited development in recent years. He cited just a handful of new buildings in recent years. “It’s not like Manhattan where there’s new condo towers being built,” he said. Overall, he said low inventory has constrained sales within a several-mile radius of the city and surrounding areas.

As in other areas, the tight market is pushing prices higher, and deals are happening off market. The median luxury sale price was $1.275 million for the three months ended March 31, up 5.7% year over year, according to Redfin. In March, a roughly 17,000-square foot house in Atlanta’s Buckhead area traded for $19.8 million in an off-market deal, records

Ansley said he sold another Buckhead house, on about 12 acres, for $12.865 million this spring. He said the property had been on the market for years, but it got three offers this spring when the market picked up. Luxury home-buyers in Atlanta, particularly those who have done well in the stock market, are paying cash and see real estate as a hedge against inflation, Ansley said. “There’s more cash in the system and those people don’t have to worry about financing,” he said.

Newark, N.J.

The Newark, N.J., metro area—which includes wealthy communities within Morris and Essex counties—had a three-month rolling average of just 1.93 months of supply at the end of January, one of the three lowest among the biggest 50 metros nationwide. During the same period, an average of just 1.6% of the area’s total luxury housing stock was listed on the market, down from 1.8% a year prior; active listings dropped 12.5% year over year.

In Livingston, a New York City commuter town about 12 miles northwest of downtown Newark, there were 42 luxury homes on the market as of late March, compared with 120 that would be listed in a “normal market,” said Jamie Silverman of Coldwell Banker Realty. She recently sold a house for $4.3 million that was listed in October and got three offers within 30 days. The Newark metro area’s median luxury sale price was $1.65 million for the three months ended March 31, compared with $1.525 million a year earlier.

The majority of buyers come from New York City, said Cynthia Baker of Lois Schneider Realtor in Summit. “I’m like a Midtown train conductor,” she said. “It’s a fire hose that’s still turned on with buyers since Covid started, and it just has not abated.

Baker said the first wave of buyers from the city in 2020 and 2021 snapped up so many homes that there are limited options for house hunters today. Meanwhile, potential sellers looking to downsize have nowhere to go in the area, and are also facing heavy competition for very little inventory, she said.

There is limited new development in the area, with just a handful of spec homes in Short Hills and Chatham. She recently had a client who snagged a new-construction home by delivering pies to the builder around Thanksgiving. Baker said the builder didn’t want to list the property before it was finished, but the pies opened the door to negotiations and the builder never listed it. “It was a little bit risky” and definitely “gimmicky,” she said, but it worked. The client is in contract to buy the house for north of $3 million.

As Iran and North Korea draw closer, Pyongyang could learn from Tehran’s attack on Israel

SEOUL—The Iranian assault on Israel last month is likely to have drawn the keen interest of one world leader in particular: North Korea’s Kim Jong Un.

The attack—and the overwhelming success of Israel and its allies, including the U.S., to repel it—offers Kim a real-world test case of a clash with Western defenses.

It adds to North Korea’s understanding of how its munitions might perform should it attack Japan or South Korea, two countries whose defenses are—like Israel—increasingly integrated with the U.S. And it comes as North Korea and Iran draw closer, raising concerns in the West that the two could eventually cooperate militarily.

Even before Iran’s attack on Israel, North Korea was watching the performance of its own munitions in Ukraine, where Russia is using North Korean arms against weapons the U.S. and its European allies have supplied to Kyiv.

To be sure, there are important differences. Iran’s attack on Israel came with ample forewarning, with the weapons in flight for hours as they traveled more than 1,000 miles. Kim is unlikely to give such advance notice for a potential strike of South Korea or Japan—one that could arrive in mere minutes, security experts say.

Nuclear-equipped North Korea ranks as one of the world’s most volatile military threats. In recent years, Pyongyang has carried out weapons tests with impunity, including an April 22 exercise that Kim oversaw and that state media claimed was the country’s first simulated nuclear counterattack.

The lessons Tehran gleaned from its own strike on Israel, as well as Israel’s small-scale retaliation against Iran, are likely to prove instructive to Kim, as well as to China’s Xi Jinping and Russia’s Vladimir Putin, said Cho Sang-keun, a professor at South Korea’s Korea Advanced Institute of Science and Technology, who researches military technology.

Russia, China, North Korea and Iran, which have drawn closer since the Ukraine war started and find common cause in their antagonism to the West, form something of an “authoritarian value chain,” Cho added.

“With similar values, these authoritarian countries can trade know-how on weapons production or technology,” Cho said.

Pyongyang-Tehran ties

North Korea recently sent a high-level delegation to Iran led by Yun Jong Ho, who heads the country’s external economic relations and visited Russia in March. State media didn’t offer details on the nature of the trip. But U.S. and South Korean officials have recently expressed concern about potential military cooperation between Iran and North Korea. The delegation, which returned to Pyongyang on Thursday, attended a trade show and met with state officials, an Iranian Foreign Ministry spokesman said earlier this week, dismissing speculation of bilateral military cooperation as biased and baseless.

Tehran and Pyongyang have a history of arms deals dating back to the Iran-Iraq war in the 1980s. Iran’s Shahab-3 ballistic missiles appear to have been developed based on North Korea’s Rodong designs, according to a 2019 assessment by the U.S. Defense Intelligence Agency.

South Korea’s spy agency said it would look for commonalities between Iran’s drones and missiles used against Israel. There is little evidence that Pyongyang and Tehran have worked closely in recent years. But the potential exists for the two to join forces on military technology, said Tianran Xu, an analyst for the Open Nuclear Network, a research group based in Vienna.

Iran used a mix of ballistic and cruise missiles along with explosive drones to attack Israel in April, similar to Russian attacks on Ukraine. Much of the incoming fire was detected by early warning radars then intercepted by defense systems, along with help from the U.S., U.K. and other allies. Israel itself has several layers of air-defense systems including the midrange David’s Sling, designed to intercept missiles from around 62 miles to 124 miles away, and the long-range Arrow-2 and Arrow-3 systems that can shoot down missiles outside the earth’s atmosphere.

But North Korea would pose a greater threat, in part because South Korea and Japan are much larger territories to defend, said Derek Grossman, a former Pentagon official who worked on Indo-Pacific security issues.

Given its overwhelming success, “the Israel case is really the exception to the rule,” said Grossman, who is now a senior defense analyst at Rand Corp., a think tank based in Santa Monica, Calif. “Shooting down a bullet with another bullet is extremely difficult to do.”

A takeaway for Kim might be to focus a first wave of missiles or drones on targeting South Korean, Japanese and U.S. missile defenses, said David Maxwell, a former U.S. Army Special Forces colonel who served in Japan and South Korea. Iran didn’t appear to attempt this or was unsuccessful in doing so against Israel. By contrast, Israel’s attack in retaliation for the Iranian barrage took out radar systems defending the main target, an Iranian air base.

“A major principle for any air attack is the suppression of enemy air defenses,” Maxwell said.

Vulnerabilities in Seoul and Tokyo

The lessons from the Iranian attack on Israel could be especially valuable to North Korea as both Pyongyang and its rivals build up their militaries to prepare for an eventual conflict.

Kim has pushed Pyongyang to develop hypersonic technology and short-range missiles that can confuse radars by changing direction midflight. More of North Korea’s newest missiles rely on solid, rather than liquid fuel, allowing for a potentially faster deployment. Pyongyang is believed to have hidden weapons inside caves and mountains, and has showcased an ability to fire missiles from railroad cars.

In response, South Korea and Japan are spending tens of billions of dollars to upgrade their missile-defense systems. For the first time, the two countries and the U.S. started late last year to knit together their missile-radar systems, though integrated defenses remain a distant goal, military experts say.

Currently, South Korea possesses its homegrown Cheongung-II interceptor, complementing the U.S. Patriot missile interceptors and the Terminal High-Altitude Area Defense system. South Korea plans to upgrade a deterrence system aimed at launching pre-emptive strikes and intercepting North Korean missiles by deploying more drones, spy satellites and homegrown medium- and long-range surface-to-air missile systems.

If Pyongyang were to launch a missile-and-drone attack in the region now, Washington and its allies may not be able to block even half of the barrage, according to Bang Jong-kwan, a former South Korean Army Major General.

“North Korea will watch closely how Iran’s tactic of putting pressure on air defenses could be applied on the Korean Peninsula,” he said.

Washington and Seoul have the ability to detect and intercept combined attacks by North Korea, though there are plans to upgrade defense systems, a Seoul military spokesman said in April.

Japan relies on both land-based Patriot-missile batteries and sea-based Aegis-equipped naval destroyers. Tokyo has also agreed to jointly develop with Washington interceptors that could take out hypersonic glide vehicles and ballistic missiles.

Japan has pledged a significant boost to its military budget—up nearly 50% this fiscal year from two years ago—as Tokyo looks to beef up defenses against regional threats such as North Korea. The expansion includes new systems, such as American Tomahawk missiles, which would give Japan the ability to target foreign military facilities if an attack appeared imminent.

Unlike Israel, South Korea and Japan don’t have much experience responding to a barrage of missiles launched all at once, said Grant Newsham, a senior research fellow at the Japan Forum for Strategic Studies.

“I suspect both South Korea and Japan would have trouble responding to a no-notice North Korean missile attack,” said Newsham, a retired U.S. Marine colonel.

CEOs weighing mergers may think twice after FTC bars industry veteran from Exxon’s board

US regulators have introduced a new point of tension in the federal government’s fractious relationship with the country’s oil industry, accusing one of the sector’s most outspoken executives of attempted collusion to boost energy prices.

The Federal Trade Commission on Thursday alleged Scott Sheffield, the former head of Pioneer Natural Resources, had tried to co-ordinate production levels with the Opec cartel to “pad Pioneer’s bottom line . . . at the expense of US households and businesses”.

The surprise move by the agency — which came alongside its approval of ExxonMobil’s $60bn takeover of Pioneer — sent tremors through the industry, leaving insiders wondering how past comments could be scrutinised and fanning fears of a broader crackdown before November’s presidential election. 

“The implications go far beyond Sheffield,” James Lucier, an analyst at Capital Alpha Partners, wrote in a note to clients. “The FTC has not to date taken an adversarial approach toward oil industry mergers . . . This relative hands-off policy is no more.”

“Any CEO contemplating a merger will have to worry about being singled out the way Sheffield was,” he added. 

Under chair Lina Khan, an appointee of US President Joe Biden, the FTC has taken an aggressive approach to its job of protecting competition and consumers. In the past two weeks alone it has banned employee non-compete agreements and sued to the block an $8.5bn luxury goods industry takeover, arguing the deal “threatens to deprive consumers of the competition for affordable handbags”.

As a condition of approving Exxon’s purchase of Pioneer, the FTC took the extraordinary step of barring Sheffield from joining the supermajor’s board as anticipated in the merger agreement. In doing so, the agency took aim at a senior figure in the US shale energy revolution, who built Pioneer over the past two decades into the biggest oil producer in Texas with operations in the sprawling Permian Basin.

The FTC homed in on Sheffield’s efforts to curb production in the middle of a dramatic price crash at the start of the Covid-19 pandemic in 2020, which left many US producers on the brink of bankruptcy. 

Sheffield led an effort urging Texas regulators to introduce supply curbs and called on members of the Opec+ group, including Saudi Arabia and Russia, to dial back output. 

Pioneer said Sheffield, 71, who has lived through six industry downturns, had merely “voiced concerns aimed at raising awareness of the issue and encouraging state, federal and international governments to act”. Sheffield declined to be interviewed.

But the FTC, which combed through hundreds of text and WhatsApp messages and public statements as it scrutinised the Exxon takeover, said he had “embark[ed] on a series of efforts to co-ordinate output levels to keep production artificially low”, and served to “direct communications between his competitors in the Permian Basin and Opec”.

Sitting on Exxon’s board risked “amplifying his public messaging and the effectiveness of his private contacts with Opec”, the agency said. 

Among the evidence the agency cited was a dinner Sheffield attended along with other US producers, hosted by the late Opec secretary-general Mohammed Barkindo, in 2017. Such dinners have become a regular industry feature in recent years, often hosted on the sidelines of the annual CERAWeek energy conference in Houston. 

Attendees say the gatherings have become increasingly cordial in recent years as memories fade of the cartel’s efforts to sink the US shale industry by flooding the market with oil.

Among the CEOs who have attended are Occidental Petroleum’s Vicki Hollub, Devon Energy’s Rick Muncrief, Chesapeake Energy’s Nick Dell’Osso and John Hess of Hess. Chesapeake declined to comment, while the other companies did not respond to requests for comment. 

Industry executives and analysts said Sheffield was paying a price for being outspoken and had become a casualty of an FTC effort to take a tough stance the sector. One leading executive described the agency’s approach as “a little over the top”.

“Sheffield has clearly been one of the voices of the US upstream industry and he is obviously in hindsight taking some heat for that,” said Dan Pickering of Pickering Energy Partners, an investment and advisory group. 

“Given the high-profile nature of this transaction they needed something. I think you would hear a lot of squawking from a lot of folks who didn’t want this deal to go through if it sailed through with no changes.”

The move comes six months before Americans head to the polls as officials in the Biden administration fret over the electoral impact of rising prices at the pump.

Kevin Book, an analyst at ClearView Energy Partners, said it could point to a “new tactic” by the administration to temper such rises: “implicitly encouraging domestic operators seeking the commission’s approval for transactions to increase their production”.

There are concerns in the industry that the FTC will initiate a broader, sector-wide inquiry into alleged collusion in the run-up to the election as it gathers a huge amount of documentation and private communications from energy companies in the middle of a mergers and acquisitions boom. 

Aside from the $60bn Exxon-Pioneer deal, the FTC has made second requests for information from companies in at least four other pending takeovers with an aggregate value of more than $100bn: Chevron and Hess; Diamondback Energy and Endeavor Energy; Occidental and CrownRock; and Chesapeake Energy and Southwestern Energy. 

The FTC declined to comment on whether it would launch a sector-wide probe into the allegations of collusion. 

But some experts said that notwithstanding the action on Sheffield, the agency’s approval of the Exxon-Pioneer deal — the supermajor’s biggest since its 1999 merger with Mobil — demonstrated it was unlikely to block similar megamergers in the oil patch. 

“I think that the outcome is genuinely encouraging for these upstream deals that are currently in front of the agency,” said Jeffrey Oliver, partner at law firm Baker Botts and a former FTC staff attorney. “That’s very helpful to many of these deals that are still in limbo.”

Chart du jour: Money tree

The majority of Russian central bank assets frozen under western sanctions have been stuck in Belgium, home to central securities depository Euroclear. As G7 partners wrangle over what to do with the assets, Euroclear has made billions just by holding them.

Payday

As the EU debates how to fund its growing spending needs for defence and the green transition, the leader of Belgium’s Socialist party has a simple proposition: Let the wealthy pay for it.

Context: Several EU countries are in breach of the EU’s strict deficit rules, among them Belgium. At the same time, following the war in Ukraine countries are trying to ramp up defence spending, and the EU needs to invest vast sums to reach its climate targets.

“If we want to finance the climate transition, we need money. This money will come from the multinationals and the great fortunes. There really is no other solution,” Paul Magnette told the Financial Times. “I believe this is a demand that is very strong in the European population.”

Magnette called for “a worldwide tax of wealth, ideally, or at least at European level”, pointing out that “we have to invest 2 per cent of GDP per year; 1 per cent private [investments], 1 per cent public.”

Magnette’s Socialist party is part of Belgium’s governing seven-party coalition, and is leading the polls at 24 per cent in the French-speaking region of Wallonia ahead of federal elections in June.

His proposal of a European wealth tax echoes the manifesto of the Socialist group in the European parliament, which will be elected at the same time as Belgium’s new government. Most areas of tax policy are up to member states.

Magnette, who was a minister in several past federal governments, also called for defence spending to be exempt from budget constraints. “We need to take budget commitments on defence out of any budget balance, because they are investments,” he said.

“We have war at the gates of Europe, we have a situation in the Middle East which is extremely worrying . . . We have to be realistic, we will need the defence and that’s it,” Magnette said.

With their lead in Wallonia, the Socialists have a good chance of re-entering a future government. But Belgium’s federal system means that regional parties will have to come together to form a national government.

In Flanders, Belgium’s Flemish-speaking region, the far-right Vlaams Belang is leading polls with almost 27 per cent, followed by the right-wing N-VA.

Prepare for long coalition negotiations come July.