Price Stability and the Return of DISCRETIONARY BUYING

Despite turmoil in the financial markets and increases in overall inventory, luxury home prices remained relatively stable throughout 2022 and at near-record levels.

• A lack of new desirable inventory kept prices high.

• Buyers became more discerning.

• Emerging affluent consumers continued to place high value on owning a luxury home.

LOW DESIRABLE-INVENTORY LEVELS

One of the biggest challenges for both sellers and buyers in 2022 was the uncertainty of where prices would eventually settle. Should they sell now when the market is less favorable or wait to see if the market improves in 2023? Buyers were equally concerned, not wanting to pay current prices if they believed that values would trend down. This phenomenon kept the market in flux and was the reason why desirable inventory levels fell in the latter part of 2022. With so little desirable inventory on the market, it also kept prices stable.

Buyers Get More Discerning

With the buying frenzy of 2020 and 2021 behind them, affluent buyers could focus on what they truly wanted in a home with less competition. Many refused to settle for anything less than total luxury, however they defined it. They put greater emphasis on home size, condition, and amenities, rather than location. That meant homes that did not meet their criteria languished on the market while the most desirable homes sold quickly at, or slightly over, asking price – keeping the year-to-year median luxury home price steady.

Conversely – because 2022 prices did not decline much from the previous year’s highs, rate-sensitive buyers suddenly found that their million dollars didn’t carry them as far.

They began searching for homes that offered them good value for their money. To sustain the same level of luxury they wanted in a home, some of them expanded their searches to emerging markets with better affordability. Some reduced their square footage requirements. Others took their money and invested it in a second home or income-producing property for a long-term hedge against inflation.

Intrinsic Value Of Luxury

Purchases made in 2022 ultimately reflect the intrinsic value placed on luxury properties by affluent individuals, especially the mass affluent. Indeed, a greater share of their wealth went toward real estate compared to other assets last year.

The purchase of homes valued over $1 million – a figure considered by the National Association of REALTORS® to be a benchmark for luxury residential real estate in the United States – tripled from 2.6% to 6.5% since 2018.

Some of this growth could be attributed to sheer volume since larger, more expensive luxury homes were in higher demand following the pandemic. It could also be viewed from the perspective of demand. A greater number of HNW individuals now consider owning a luxury property a necessity for their asset portfolio. All indications are that this trend is here to stay, even as buyers’ definition of luxury continues to evolve and experts expect demand to reset to a more sustainable level in 2023.

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