Real estate: The housing market in 2022 was plagued by issues, including demand, high costs, and a shortage of properties available.
The market is anticipated to shift as the new year gets underway, especially in light of the rise in interest rates last year.
Normalization
Home prices are still dropping on the real estate market.
Many in the industry have changed their outlook to prioritize normalization over correction.
Sales activity and price increase experienced a rapid rise between March 2020 and March 2022 that seemed impossible to stop.
But things are beginning to change.
The global home price growth for luxury properties, which comprises the top 5% of the market, dropped to 8.8% per year in the third quarter.
A Knight Frank report indicates that it has decreased 10.9% from its peak at the beginning of 2022.
The report takes into consideration the inflation in housing costs, which are falling by 0.3% year-on-year.
The markets
The US markets are “coming back to earth,” according to Jonathan Miller, president and CEO of the New York-based appraisal company Miller Samuel.
“Clearly, the pivot of Fed policy has had an impact on every housing market in the country because rates were too low for too long,” said Miller.
“It created this insatiable demand and obliterated supply.”
Despite concerns about a recession, Jonathan Miller thinks it won’t be as severe as previous ones because of a healthier labor market.
Meanwhile, similar headwinds are being experienced in other major cities.
Experts predict that areas where large populations travel to (Dubai and Miami) will likely have little change or impact.
Read also: 2022 ended some people’s dreams to buy a new home
The New York market
New York’s sales activities set records in 2021.
Since then, the city has experienced a major slowdown that began in December and is anticipated to persist into the second quarter.
The CEO of Brown Harris Stevens, Bess Freedman, observed that deals are down and demands have cooled.
“The first quarters of 2022 were excellent, like superb,” said Freedman.
“And then the third quarter started to slow down, and now the fourth quarter has really slowed down.”
Bess Freedman anticipates turmoil in the real estate market this year as the Fed keeps raising rates to fight inflation.
Despite the robust labor market, she claims that worries about a recession are still present.
“Real estate will be as it has been recently, which is a little bit rocky,” she elaborated.
“It’s been ups and downs. There are still a lot of people spending a lot of money on expensive apartments – we just had somebody sign something for over $20 million.”
“People are still closing and signing; they aren’t all walking away, but it’s slower,” Freedman continued.
“It’s going to be a little challenging in the first quarter and maybe into the second, but I think we’ll rebound and start picking up again.”
Dollar strength
For foreign investment, the dollar’s continued rise remains a barrier.
Jonathan Miller claims that incentives for Wall Street executives may be reduced by more than 30% from 2021 levels, which would be detrimental to market expansion.
While there are a lot of cash buyers in Manhattan, he continued, the borough would still profit from lower rates.
The financial markets, which have been erratic as a result of the Fed’s policy adjustments, also worry New York buyers.
“It creates a cautionary environment,” Miller explained.
“We’re probably looking at a year closer to pre-pandemic, which was a little bit below average in terms of activity.”
“The 2023 story is going to be normalized, [and] certainly not a boom.”
Read also: The Feds and its role in setting market prices
The Los Angeles market
The Agency’s CEO, Mauricio Umansky, remarked that the Los Angeles real estate market underwent changes around the middle of 2022.
He highlighted that over the previous two and a half years, the market has shifted from an unsustainable pace.
“Volume dropped while the industry’s cyclical nature and historical seasonality quickly returned,” said Umansky.
“What felt like a jolt was actually what I believe was the beginning of a rebalancing act.”
This year, he anticipates the luxury market in Los Angeles to remain robust.
“More millionaires exist today than at any other point in history,” explained Umansky.
“Markets are more globalized than ever, and there is much wealth to be distributed, especially among hyper-wealthy markets.”
The CEO of The Agency went on to explain:
“I believe housing remains a primary investment for the world’s most affluent citizens and a safe hedge against inflation.”
“While economists predict the slowdown in volume to continue into the start of the new year, supply is still tight, and demand is on the rise, meaning price growth is still expected in the year ahead.”
According to a recent Knight Frank projection, the value of prime properties in Los Angeles is predicted to increase by 4% in 2023.
The upcoming year should be stable, according to Mauricio Umansky:
“While the current market presents some points of discomfort, buyers, sellers, and agents will acclimate to our new normal until the market picks up again.”
Reference:
Real estate markets set to normalize in 2023 after nearly three years of the pandemic boom
