2023: Not fully a buyer’s market as high-end inventory still tight

By Mickey ALAM KHAN

Reflecting on the second half of 2022, my net takeaway is that, while demand has tapered and available inventory is trending up, much of the situation at the high-end remains the same.

Put simply, there still is not sufficient inventory of luxury homes to meet demand.

My prediction for 2023 is that we will be moving forward in inches, not feet. We are heading in the direction of a buyer’s market, but we will not quite reach it.

What we hope to see in 2023 is true market stabilization.

The general sentiment is that there is still strong demand for luxury listings, and builders cannot build fast enough, which is why we have yet to see a dramatic reduction in prices.

One of the most important metrics is overall demand versus supply, and at the luxury level, we simply do not have enough supply – or enough of the right supply – to meet the need.

Smart, stable investment

At the very top of the market, buyers are not dependent on mortgages. 

For the most part, transactions continue to be handled in cash, so the recent rate hikes, which have significantly slowed the home mortgage market, have not impacted this segment of consumers.

Furthermore, savvy investors have seen the recent, major fluctuations in the stock market – a component that has far more impact on this tier of buyers than mortgage rates – and they recognize the advantages of putting their money into the most stable of asset classes, namely real estate.

In my opinion, 2020, 2021 – and even the first half of 2022 – were anomalies. The year ahead is most likely going to look like what we saw in 2019, which was a more balanced market. 

The economy is still, overall, moving down the right path. Economic strength, coupled with other factors, means that we may see a slowdown compared to the explosive two-and-a-half years we just experienced, but it will be nowhere near what we witnessed in 2008 and 2009.

Market to market observations

Some surprises and key takeaways we have observed across our global network at the close of 2022 include:

  • In Naples, Florida, the impact from Hurricane Ian has been an impetus for many wealthy consumers to tear down their homes instead of making costly repairs. Homeowners in Florida are trying to turn losses into positives – rebuild stronger and better structures
  • We saw a slowdown earlier this year in Dallas, Texas, but then a gradual uptick in the fall. All-cash purchases have been a trend throughout big markets in the state, and our agents on the ground are still seeing luxury consumers resettle there from the East Coast and California. Texas remains a seller’s market
  • Overseas, in South Africa, for example, prices are now 10 percent to 15 percent below asking. The South African rand has slipped against a stronger British pound and U.S. dollar, which is fueling out-of-market sales.
  • In Chicago, the number of days-on-market has increased among high-end homes, and there have been price reductions
  • In Hawaii, the story of low inventory continues. International interest has not waned

In short, while situations certainly vary from one market to the next, we are not seeing any evidence of the bottom dropping out.

Return of the international buyer – and Little Black Books

An additional prediction for 2023 is a return to events and activations.

Black books and relationships will be in full swing next year. Real estate agents are clamoring for more in-person events and celebrations.

Every happy moment and holiday will be leveraged as an opportunity to gather with clients and, in most cases, reconvene after years of being apart.

I also predict that international sales will continue to rise next year.

Tourism and visitation levels are still significantly down from pre-pandemic numbers, but they are rising. This is a key element of the luxury housing market to which not enough attention has been given.

Coastal cities, such as New York and Miami, boomed because of sales to the international visitor. While the market all-but-disappeared due to COVID-19, its eventual return is a key element of the buying and selling of luxury residential real estate.

Definition of home forever changed

Finally, if there is one permanent factor that has changed within the last two years, it is that our view of the home has shifted from a place to crash to a center of gravity.

That redefinition will not waver as work-from-home set-ups continue to be part of everyday living and consumers put an added emphasis on in-home amenities for entertainment, wellness and gatherings.

Mickey ALAM KHAN is New York-based president of Luxury Portfolio International, the world’s leading network of independent luxury real estate brokerages. He is also founder of Luxury Daily. Instagram: @MickeyAlamKhan

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