Sotheby's Real Estate 2023 Luxury Outlook
"Real estate is still king in passing wealth between generations."
Sotheby’s International Realty recently released a 2023 Luxury Outlook. According to the Chief Marketing Officer, A. Bradley Nelson, in 2022, luxury prices held steady. Although demand dropped off in other markets because of interest rates, the affluent are often making cash purchases.
In this report, Nelson states: “We believe the reasons for prices staying strong are multifold—first, the world’s seen a surge of wealth creation in recent years and the affluent still have more money to spend; second, many luxury purchases are made in cash, so the high-end sector remains somewhat insulated from interest-rate fluctuations.”
Nelson goes on to describe the lifestyle change from Covid that has led people to apply more focus on the homelife. “Luxury homeowners can rationalize the expenses of owning multiple properties since they are spending more time in them, and are therefore less likely to put them up for sale.” As such, inventory continues to be low coupled with an undersupply of new construction.
The luxury market is also seeing client activity driven by opportunistic investments. According to Philip A. White Jr., president and CEO, Sotheby’s International Realty. However, the number one challenge affecting luxury realtors is a lack of inventory.
“In some cases,” White says, “there’s only a one-month supply, whereas six months is considered equilibrium.”
When asked which influences affect both the high end and general market, White thinks interest rates are at the center of everything, even while luxury buyers are cash buyers. Interest rates affect the stock market and the stock market affects the luxury market.
Most economists believe interest rates will settle just above 6% by the end of 2023. Fannie Mae economists predict rates will steadily fall, but not below 6% anytime soon.
Luxury buyers have taken out mortgages in the past because rates were so low. Today, they are now using cash, private and portfolio financing.
“The fear of missing out that was happening last year is now replaced by the fear of paying too much,” says Michael Pallier, managing director, Sydney Sotheby’s International Realty. “While the rates are going up, [buyers] may feel they don’t have to rush because, in six months’ time, prices might present a better value.”
Many luxury buyers use their equities portfolio to purchase a home, either by selling a portion of their stock or taking a loan against their portfolio. A downward turn in the stock market can affect sales, while those wanting to hedge their portfolio may find an opportunity in real estate holdings.
“The reason for buying into luxury real estate as an investment is primarily that the capital values are expected to appreciate over the long-term, due to location and scarcity of supply,” Steve Tay, senior associate vice president, List Sotheby’s International Realty, Singapore says. “This still holds true even in a high-interest-rate environment.”
Homes that are priced well and truly special are still moving at a fairly quick pace. Because there are very few luxury homes on the market today, compared to the last 3 years, prices have not adjusted downward. To read the entire report click here.
The lower amount of inventory in the luxury and lakefront market provides an excellent opportunity for sellers. This might be a great time to put your home on the market. Contact me today for a no obligation market analysis.