Changing Market AND MINDSETS

Gradually, the 2022 market appeared to be resetting to pre-pandemic conditions.

• Luxury properties were taking longer to sell.

• Buyers didn’t have to compete with as many multiple offers or feel pressure to offer over-asking price without contingencies.

• Major metropolitan areas were once again in demand.

• Condos and homes with smaller footprints became “smart buys.”

• As brick-and-mortar luxury retail, hotels, and travel roared back to life, people’s lives took them outside of the very homes they so desperately sought in 2020 and 2021.

Back To The Bottom Line

The most noticeable market changes were slowing sales and flat prices year-to-year – but more subtly, consumer mindsets shifted. During 2020 and 2021, people were more focused on purchasing properties that addressed shortterm lifestyle needs during the pandemic – i.e., more space, larger backyards, two offices, playrooms for the kids, etc.

Money was a distant concern for most affluent buyers at the time, especially as their savings, equity and investment portfolios grew during the pandemic boom. Interest rates were at historic lows. Fast forward to 2022, and money became top of mind. Even the wealthiest of individuals were back taking a more cautious, long-term view of real estate, whether it was for financial security or good investment return.

Hitting The Pause Button

Uncertainty and hesitancy for both buyers and sellers were new features in the market, causing a stalemate. If HNW sellers didn’t need to sell, they simply refrained from listing their properties. Similarly, HNW buyers were less likely to settle for a property they didn’t want, especially since they suddenly had more buying power.

Location was no longer the main driver for many of them, who were still freed up by work-from-home arrangements. Amenity-filled, move-in-ready homes and locations that offered their preferred lifestyle were now at the top of their list. Seeking a hedge against inflation, they also knew they could move to a lower tax state with better house affordability –an increasingly attractive alternative for the younger affluent generations of buyers who tended to be more price-sensitive and less enamored by prestige addresses.

If a seller did list their home and a buyer did put an offer on it, they may not have been able to align on price. Finding it difficult to shrug off the not-too-distant memory of 2021’s historic price appreciation, some sellers were not ready to negotiate on price. Meanwhile, buyers knew they had other options and could walk away from deals. The result was that fewer luxury buyers and sellers were making moves.

Seasonality Is Back

This standoff between affluent buyers and sellers was already revealing itself in the market by the end of 2022 as inventory and sales levels dropped, and prices remained relatively stable. But it is also important to put these numbers into historical perspective. The holiday season is a slower time of year. If you compare sales in the final quarter of 2022 to the same periods in 2018 and 2019 – two “normal” years – the December numbers also dropped along with inventory.

This shows that what continued to hold back luxury property sales in the final quarter was the lack of new inventory.

Inventory Levels CREATE DRAMA

Without question, inventory has played the most significant role in the changes that occurred in 2022.

• If inventory increased, sales increased.

• If inventory dropped, sales dropped.

• The lack of new inventory coming onto the market continued to keep prices persistently high despite interest rates rising.

Buying Frenzy Continues

In the first quarter, inventory levels were historically low, and equally for new inventory. This depletion was the continued result of the buying frenzy that began in 2020. Sellers were hesitant to list because they feared they might not find another property. New inventory that checked all of buyers’ boxes were selling 10 to 15% over asking price. During this time, stock markets were at an all-time high and interest rates were at an all-time low.

Inventory Surges

Second quarter, which includes the busy spring buying season, saw the most dramatic swing in inventory. Sellers on the fence recognized that now was the time to sell to capitalize on the historically high prices. Conversely, the high prices naturally forced a cap on demand with fewer luxury buyers willing to pay. Stock market declines and other economic factors began to weigh down demand as well. There was also a smaller buyer pool since many had already purchased their primary homes during 2020 and 2021.

New Inventory Slips

Despite more overall inventory available in the third and fourth quarters, it was not enough to satisfy the increasingly discriminating buyers now in the market. Undesirable homes, especially those needing renovations or overpriced, sat on the market while new sellers paused plans to list new inventory in many markets. However, not every market saw the same drop in new inventory and overall inventory increases; some remained competitive seller markets by the end of 2022.