Being rich may come with many privileges, but a smooth ride through the new-home buying process isn’t one of them at the moment. While buyers of more modest means are struggling to buy because of high interest rates and high prices, luxury buyers with pockets of cash face a different problem—a lack of inventory.

“You have this pool of higher-wealth individuals, whether that be baby boomers, international buyers, or young people who have wealth from other sources that aren’t as sensitive to interest rates, if at all,” says Zonda chief economist Ali Wolf.

In 2020–21, luxury home sales skyrocketed across the country. Demand has been so high it has created inventory shortages in almost 200 luxury markets across the U.S., according to research from Luxury Portfolio International (LPI). The consultancy predicts demand will remain strong for new projects and high-end developments, but imbalance among buyers, sellers, and supply might slow down the home buying process.

“From [the luxury buyer’s] point of view, U.S. real estate is still reasonably affordable, or a good inflation hedge, or just a good investment for the long term,” Wolf says. “So, while many other buyer groups are having to pull back because of financing costs, there’s this other pool of buyers who just don’t care, because the change in interest rates won’t make or break this decision.”

LPI also found that a lack of inventory of high-end homes has created new pockets of luxury—which it defines as locations with median prices exceeding $1 million. Idaho had the fastest-growing luxury market between 2019 and 2022, while traditional favorite states like California, Colorado, Florida, Texas, and Washington saw continued expansion.

Despite the general market slowdown, luxury builders such as Toll Brothers continue to exceed Wall Street expectations. The builder reported a $640.5 million profit Dec. 6 and said home sales were $3.6 billion, 21% higher than the previous year's fourth quarter.

Overall, new construction has slowed across the country. But despite the difficulties with construction, the home building company remains optimistic.

“We believe the long-term prospects for the housing market remain positive despite recent weakness,” Doug Yearley, Toll Brothers chairman and CEO, said in the fourth quarter earnings call. “Demographic and migration trends continue in our favor. In addition, there continues to be a substantial shortage of homes in America as housing starts have not kept up with population growth for at least the past 15 years.”

According to LPI, luxury consumers are adapting to global economic and social circumstances better than the general population. They’ve become more efficient home buyers, prioritizing key facts and figures about the quality of their investments as well as the emotional aspects of the purchase.

“The luxury home buyer is arguably the most astute connoisseur of real estate in the world,” said Mickey Alam Khan, president of LPI. “The study underscores that they are highly attuned to the realities of the global financial and geopolitical landscape, yet luxury residential real estate remains a preferred destination for their wealth. The panorama of the ‘COVID boom’ is clearly behind us, with the latter half of 2022 ushering necessary market stability into 2023 and beyond.”

That’s not causing a lot of comfort at Toll Brothers, where Yearley says it’ll take time to understand the 2023 market.

“During COVID, you could sell out at the back of a station wagon with success. That is no longer the case. As an industry, we probably will not have a better sense of the depth and length of this downturn until we are further into the spring selling season in March and April and hopefully after the Federal Reserve’s work is done,” he said. “We recognize that if market conditions do not improve, we will need to be more aggressive with price reductions to rebuild our backlog and turn our inventory.”