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A Look Ahead for the US Luxury Real-Estate Market

A Look Ahead for the US Luxury Real-Estate Market

Many market predictions come out at the start of a new year, and if the last couple of years have taught us anything, it’s that the crystal ball of real estate is never crystal clear. Still, with 2022 well underway, we can confidently predict that no bubble will burst, and the housing market, particularly the luxury market, will remain strong. Yes, mortgage rates have begun to climb, and record-breaking price appreciation is starting to slow. However, none of this points to a weakening of the US real-estate market but rather a cooling of the intensely hot market we’ve been experiencing since the second half of 2020.

The latest numbers from November show year-over-year home-price appreciation of 18.8 percent, down slightly from October’s high of 19.1 percent, according to the S&P CoreLogic Case-Shiller Home Price Index. Yet, many markets continue to soar from Phoenix to Miami, seeing price appreciation in November of 32.2 percent and 26.6 percent, respectively.

Many of the trends established in 2021 are expected to continue throughout the year. Resort-style living remains ultra-desirable among the luxury clientele. Buyers continue to seek outdoor spaces, especially those with pools and sports courts. Destination markets, including Carmel, Wine Country, Palm Springs, Aspen, Park City, Maui and South Florida, turned up the heat. Remote workers have snapped up vacation homes they can enjoy for more of the year and rent out as income properties for the rest. Supply-chain constraints have curbed buyers’ appetites for taking on renovations, causing the demand for turnkey homes to surge and boding well for hotel brands wading into the residential marketplace, such as the upcoming Mandarin Oriental Residences in Beverly Hills.

Cities from San Francisco to Boston, New York to Denver were back in the game as buyers returned to work again and chose to be close to dining, shopping, culture and entertainment. The ultra-luxury markets of Los Angeles saw the most significant movement among local buyers trading up, while international investors began to return to US cities by year’s end. South Florida, Las Vegas and Scottsdale welcomed a rush of buyers from California, Seattle, New York and Chicago seeking sunny weather and even sunnier tax benefits.

One trend that took off in 2020 was further solidified in 2021: More home shoppers took to social media, driving sales in every market. Virtual tours, visual tech and digital media continued to take center stage, helping ring in what we now know as the digital age of real estate. The agent’s role became even more crucial, with connectivity happening in real-time. Agents helped clients navigate the tech landscape, remaining the key local expert who could deliver the upper hand in ongoing bidding wars.

Looking ahead, the future of work will certainly shape major markets. It remains to be seen whether companies will resume occupancy of large office spaces or go with a more remote-focused environment. Demand will continue to outpace supply until more new construction makes its way into the marketplace. New-home construction ramped up unexpectedly at the end of the year, and some relief is on the way. Just as in 2021, the number of homes sold will remain high, boding well for the residential marketplace.

So, our predictions point to another strong market throughout 2022. Even if price appreciation slows to single-digit increments, home prices will still be 20 percent above pre-pandemic levels. The average rate for a 30-year fixed mortgage recently rose above the 3.5-percent mark for the first time in almost two years. However, even if the rate climbs to 4 percent by year’s end, it will still be historically low. The threat of rising rates typically motivates buyers waiting on the sidelines—movement we expect to see in time for the busy spring market.

It remains to be seen how high inflation will go, how long it will stay high and what effects it will have on consumer spending. As for luxury buyers, they still have ample disposable income to spend on simultaneously diversifying their portfolios and enhancing their lifestyles, whether seeking a primary home, vacation retreat or income-generating property. After all, home is still where the heart is and where the big money is invested.

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