The supply of luxury homes and condos in South Florida isn’t merely tight. It’s worse than that.

“This isn’t just a decline in inventory,” said Jonathan Miller, CEO of Miller Samuel, an appraisal and consulting firm that tracks 14 real estate markets in the region for brokerage Douglas Elliman. “This is a collapse.” 

That’s not hyperbole, according to the numbers. In the first quarter of this year, South Florida inventory stood at a record low of 7,906 units, according to Miller’s data. That’s down from an average of 27,000 units from 2017 to 2019.

Miller doesn’t see the situation getting back to normal anytime soon, either. “Even if listing inventory doubled or even tripled, supply would be considered ‘low’ in most markets,” he said.

But sales are red hot.

Despite that low number of available properties, the first quarter saw more than $11.8 billion in total sales, topping the previous quarter by more than $1.9 billion. Some luxury markets achieved record highs, according to Miller.

The area’s top five luxury real estate markets delivered over 45% of all sales volume for the region, or almost $5.4 billion, according to data compiled by Miller for Douglas Elliman’s Elliman Report published earlier Wednesday.

Here’s a list of the top five luxury markets in South Florida by average sales price and a closer look at how headwinds like low inventory and rising mortgage rates might affect future sales.

1. Palm Beach

For the fourth consecutive quarter, Palm Beach secured the top spot in South Florida for highest average luxury home sale price. The town accounted for over half a billion in total sales volume, according to Miller’s analysis.

The average price of a luxury single-family home in the ritzy beach town topped $21 million. (Luxury is defined in the Elliman Report as the upper 10% of sales in a market.) The average price per square foot was $3,659, down 2.7% from the record price in the previous quarter, but the number of sales closed in Q1 totaled 15, up almost 67% over the fourth quarter, according to the report.

Palm Beach also had the biggest first-quarter sale in South Florida. The beachfront home at 854 S County Rd. closed at $53 million, according to public records. The 10,171-square-foot residence sits on 2 acres across the Intracoastal Waterway with 220 feet of water frontage, according to the listing. The price per square foot was a whopping $5,210.

Listing agent Gary Pohrer of Douglas Elliman told CNBC the size of the estate and water frontage set the property above the rest. When asked about his outlook on the market’s future, Pohrer told CNBC he remains “cautiously optimistic” with his biggest worry being a serious inventory problem. 

“If you look at the history of active listings, we are at an all-time record low, that doesn’t change overnight,” said Pohrer.  

Miller sees the inventory crisis having a significant impact on upcoming quarters.

“It will restrain sales below their potential and sustain or increase the market share of bidding wars,” he said.

2. Miami Beach, Barrier Islands

Miami Beach, Barrier Islands, was the second most expensive luxury single-family home market in the report, with 17 closings and an average price of almost $17.9 million. The average price per square foot was $2,766, down from the record of $2,835 set in the previous quarter. Total sales volume at all price levels in the market was almost $2.9 billion second only to the Miami Mainland market, which racked up $3.9 billion in sales. 

According to Miller, Miami’s Fisher Island saw the Miami Beach, Barrier Island, market’s largest first-quarter transaction: a $30 million deal for a penthouse condominium in Palazzo Della Luna, a 10-story ultra-luxury condominium located at 6800 Fisher Island Dr. The listing agent, Dora Puig, told CNBC that the property known as Penthouse 3 spans almost 6,800 square feet, and has four bedrooms, 4.5 baths and an over 8,000-square-foot rooftop terrace.

Looking ahead at potential headwinds, Puig said she is less concerned about mortgage rates rising since most of her wealthy buyers in the high-end market pay in cash.

In essence, the luxury buyer’s reliance on cash mutes the effect of rising rates, but it doesn’t eliminate it. Miller told CNBC they could create “a slight increase in listing inventory and a slight reduction from the current frenzied environment.”

Puig is worried, however, about the Federal Reserve raising rates too high and too fast, potentially sending the economy into a deep recession.

“If that occurs, people in all sectors of the market will be affected and at that point, no one is immune to the economic effects that will take place,” Puig said.

3. Coral Gables

Coral Gables, which is located southwest of downtown Miami, was the third most expensive luxury home market with 15 closings and an average sale price of about $10.6 million, a record for the area. The average price per square foot also hit an all-time high of $1,609, up 33.7% over the previous quarter, according to Miller.

4. Fort Lauderdale

In fourth place is the Fort Lauderdale market, which delivered 57 luxury home sales at an average price of almost $6.9 million and an average price per square foot of $1,167, according to Miller, both are all-time records for Fort Lauderdale.

5. Boca Raton/Highland Beach

Boca Raton/Highland Beach was the fifth most expensive luxury home market, with 60 sales at an average sale price just over $5.5 million. The average price per square foot of $670 also set a record for the market. 

The market achieved the fourth-highest home sale in all of South Florida, and a record-breaking price for the town of Highland Beach when the oceanfront mansion at 2455 S Ocean Blvd., sold for $40 million, according to public records. The sale of the 17,600-square-foot home was the highest price ever for Boca Raton/Highland Beach, according to Miller. The home’s listing agent, Beverly Aluise Knight of Ocean Estate Properties, told CNBC the mansion’s move-in-ready status was a plus.

“Fully designer-furnished — write a check, move right in — hard to find in this market,” she said. Knight also told CNBC the buyer paid an additional $5 million for furnishings, bringing the record-breaking sale to $45 million. 

When asked about how rising rates and low inventory might impact real estate sales in South Florida, Knight said it all depends on the market. But she believes when unforeseen events negatively impact the market it’s homes on the water that have proven to be the most resilient.

“I take great stock in believing that history has shown that the oceanfront is always the last to crash and the first to recover,” said Knight.