Resetting EXPECTATIONS

The market is in flux, so what can we expect during this transitional year? Certainly, the market has evolved from the red-hot conditions seen over the last few years. Does it indicate a dire market to come, though? Likely not. In the luxury world, the data paints a picture of a changing market–but not one without opportunity, for buyers or for sellers.

As always, and perhaps even more so than in recent years, the key to success in 2023 will lie in agents’ hands and, primarily, their ability to network, market, and keep their fingers on the pulse of their own unique communities.

As Jade Mills, of Coldwell Banker Realty in Beverly Hills, put it, “Think of 2023 as the year we come back to normalcy. Conditions will be different, but opportunity will still be there for those who want to seize it.”

AN EASIER TIME FOR BUYERS – BUT NOT A BUYERS’ MARKET

Though there is no crystal ball to predict the future, one thing is all but certain: Buyers will not face the uphill battle they did over the last few years in 2023.

Luxury inventory rose significantly during the second quarter of 2022, easing pressure and reducing competition for eager buyers. In 2023, inventory levels are a wild card, but many housing forecasts are calling for an increase.

Despite these headwinds, though, buyers will not have a waterfall of options — just more than in the previous two years. According to the Institute for Luxury Home Marketing, current inventory levels are about 25% below 2018-2019 averages, and many consumers will be hesitant to list as their investment portfolios waver and economic uncertainty ensues.

If mortgage rates remain high, some may also hold on to their properties to retain their existing low rates. According to data and analytics firm Black Knight, around 90% of mortgage borrowers have rates under 5%.5 Meanwhile, average 30year rates have sat at 6% or above since September, and Realtor.com projects mortgage rates will average 7.4% in 2023, trickling down to 7.1% by 2023’s year-end.6

Still, even slightly more inventory will mean more negotiations and, more than likely, longer times on market, especially for homes not expertly marketed, staged, and prepped.

“Buyers are going to have a little more power in the luxury market this year,” said Liz Gehringer, President of Coldwell Banker Affiliate Business and Chief Operating Officer of Coldwell Banker Real Estate LLC. “Balance is coming back into view.”

Thanks to this added power, buyers are apt to be more discerning when shopping for a home, and pricing will — and has already started to — reflect this.

The luxury median sale-price-to-list-price ratio (SP/LP%) sat at just over 97% at the end of 2022. While this is down from the 100% median seen throughout 2021, it’s still not back to pre-pandemic levels, indicating a cooling market but not an all-out buyers’ market in the least.

The exception lies in a handful of metros, where SP/LP% has declined 5% to 10% (or more). These include previously booming spots like the East Bay area, Seattle, San Francisco, Silicon Valley, and Austin. In the remainder of cities, it’s simply a more balanced market coming into view. National Association of Realtors’ Chief Economist Lawrence Yun said as much in his recent 2023 forecast.

“After a big boom over the past two years, there will essentially be no change nationally [in home prices],” the trade group’s chief economist said. “Half of the country may experience small price gains, while the other half may see slight price declines.7

Fortunately, the majority of luxury agents don’t project major price declines in their areas. According to our recent survey of over 600 Coldwell Banker Luxury Property Specialists, 61% expect prices to remain flat or even rise modestly this year.

STRATEGY AND NEGOTIATION: BIG SALES DRIVERS

Regardless of where prices head, “The days of expecting over-listing offers are likely over,” Gehringer said. “In most places, you can expect a pretty even playing field.”

Luxury Property Specialists largely agree. About 69% predict 2023 market conditions will be either good or fair for buyers; just slightly more — around 75% — predict the same for sellers.

It’s close to balanced, but the key is in the stark about-face from past years. Sellers have become accustomed to bidding wars, breakneck selling speeds, and endless negotiating power. Now that buyers are gaining some of that power back — both in negotiations and in the properties they have to choose from — luxury sellers will need to adjust accordingly.

That doesn’t necessarily mean bargain-basement pricing or thousands in concessions, but coming to the table ready and willing to negotiate will be key.

“I think their negotiations are going to be a bit more evenly matched this year,” Gehringer said. “Don’t expect any one party to dominate the other.”

Quality representation will also make all the difference. With buyers more discerning and hesitant, sellers who engage capable, skilled, and connected agents will rise to the top.

“Using an agent with a deep network and the ability to match a property with the right kinds of buyers is going to be the key to selling success in 2023,” said Michael Altneu, Vice President of Global Luxury for Coldwell Banker Real Estate LLC. “Standout staging and marketing will be vital, too.”

Survey data supports as much. According to the National Association of Realtors, eight in 10 buyers’ agents say staging makes it easier for consumers to visualize a home.8 More importantly, most sellers’ agents say staging directly impacts the bottom line. Over 40% say staging increases offers by 1% to 10%, while 9% say the jump is 11% to 20% — a significant amount of cash on a luxury transaction.

In addition to staging, agents can also recommend key upgrades to make properties more marketable for today’s choosy buyers. Our survey shows that luxury buyers put high stock in chef’s kitchens, indoor-outdoor living spaces, top-notch views, and privacy. Well-appointed home offices are also in high demand.

“Understanding consumer preferences and catering to those aspects is now more important than ever,” said Danny Hertzberg of the Jills Zeder Group with Coldwell Banker Realty in Miami Beach.

Market Conditions For Buyers In 2023

Market Conditions For Sellers In 2023

An Eye On Market Variability

All real estate is local, but the variability between markets will be palpable in 2023. With prices trending up in some, down in others, and inflation impacting sectors and geographic areas very differently, luxury buyers are likely to be on the move this year.

Realtor.com shows that cross-market demand— or buyers shopping for homes outside their local area — reached record levels in 2022, accounting for nearly 61% of the site’s listing views. This year, the trend’s likely here to stay.9

With the continued work-from-home arrangements many HNW individuals enjoy — not to mention the more discerning approach they’re now able to take to home shopping, 2023 will be the story of migration and relocation in luxury real estate.

“We’re going to see a lot of shifting preferences as far as location goes,” Altneu said. “While these probably won’t be price-driven, you can expect luxury buyers to seek the most well-suited properties they can find — no matter where they might be located.”

Agents appear to be poised for these changing trends. Only a third of luxury agents expect the majority of their sales to come from local buyers. Four in 10 think out-of-state buyers will make up the bulk of their clientele, while nearly a quarter expect purchases from other parts of their state.

However you slice it, 2023 is ushering in a changing luxury market, one where agent representation matters more than ever. The network, expertise, and local knowledge an agent brings will play a critical role in just how successful sellers and buyers can be.

As Altneu noted, “The market’s shifting, but with the right agent on their side, any luxury consumer can achieve their goals in 2023.”