2023: A Return to Regular for Luxury Real Estate?

Originally published for by Lisa Klein

Surprising, challenging, global: these are a few ways in which a panel of experts describe the luxury real estate market to come in 2023.

However, they also say that with perseverance and engagement savvy agents can make it through – and succeed – in the next year of a market that while seemingly worrisome, is simply returning to a pre-pandemic norm.

“I feel like there’s always these sorts of pits in the market,” said Amir Korangy, founder and publisher of real estate news publication The Real Deal, during Luxury Portfolio International’s December 2022 Luxury Hour webinar.

But “overall you’ve seen the market climb up – the trajectory is always upward,” he said. “If you’re willing to go through these several years of adjustments and the market fixing itself, there’s always an upside.”

Mickey Alam Khan, New York-based president of Luxury Portfolio International, Dec. 9 hosted the Luxury Hour webinar on the outlook for luxury real estate in 2023.

Watch the recording here!

Rise and fall

Thanks to a number of factors, the pandemic-fueled real estate frenzy finally seems to be turning around.

“There is a lot of pause right now because, I think, people are waiting to see where things will go,” said Dina Landi, managing partner of Riskin Partners/Village Properties in Santa Barbara, California.

The housing market has been hit by a dipping stock market, low housing inventory, rising mortgage rates and, of course, COVID-19-induced inflation that peaked around 9 percent this summer.

“The real problem and the real root of inflation is money,” said Gregory Heym, chief economist at Brown Harris Stevens in New York.

“Our money supply [in the United States] has gone up 40 percent since COVID,” he said.

“When you give $4 to $5 trillion to Americans and they have that money in their pockets, they’re going spend it, and that’s why we have the runaway inflation.”

Although inflation is at a 40-year high, the good news is that mortgage rates are not, despite public perception thanks to unusually low rates during the pandemic.

“Six-and-a-half percent is not a high mortgage rate,” Mr. Heym said. “The average 30-year conforming rate in the last half-century is closer to 8 percent. Some people can remember 18 percent mortgages.”

Added to that, the war in Ukraine has caused a surge in the cost of utilities in many European countries that are reliant on natural gas from Russia.  

“We have a serious energy crisis,” said Liv Baggen, director of global business development for Leading Real Estate Companies of the World.

“Take a normal one-bedroom flat in Amsterdam, Berlin or Brussels, where your energy bill used to be 150 euro per month – that energy bill is now 600 euro per month,” she said.

Although a global recession has not yet begun, the scales are tipping.

In the U.S., consumers are now running out of the money that was so plentiful last year, retail prices are increasing, meaning less bang for the buck and credit card and other debt is rising.

A recession seems imminent, but that may not be a bad thing in the long run, especially for the recently wild-priced housing market.

“Recessions are the only things that reset housing prices,” Mr. Heym said.

The panel of LPI’s December Luxury Hour webinar moderated by LPI president Mickey Alam Khan
Course correction

While housing prices falling and days-on-market increasing may seem like a doom-and-gloom scenario, many forget just how high of a pandemic peak the market is falling from.

“I think everybody understands that 2020 and ‘21 was a super-boom, steroid market and was really an anomaly and an outlier,” said Mike Pappas, president/CEO of The Keyes Company/Illustrated Properties in southern Florida.

In South Florida, days-on-market is hovering around 90-95, up from 47 days a year ago. But, historically, that number was 300 days.

“So you’re in this shift in the market where, I think, we’re really feeling a calming, normalizing market,” Mr. Pappas said.

Extreme events such as the pandemic skew the numbers, but consumers are not going to stop purchasing property despite slowdowns.

“I remember seeing that also during 2001,” Mr. Korangy said.

“The first three months that followed 9/11 were the worst three months in New York City history,” he said. “The three months that followed that were some of the best in New York City history. Because money has to go somewhere.

“At the end of the day, people are not just going to pool their money and put it in banks.”

Back to basics

Agents will need to be well-informed about these market shifts and be able to communicate what that really means to their clients.

What do higher mortgage rates do to a seller’s negotiating power? Why is a 20 percent price appreciation not realistic suddenly? Why does it seem to be taking longer than “normal” to sell their home?

“We’re seeing a switch from an intense market where properties flew off the shelves to now where you have to manage the expectations of the listing,” Mr. Pappas said.

This switch means a change for agents, too, who will need to get used to the normal path to selling a home again.

“I think the marketing strategy and tactics go back to the basics,” Ms. Landi said.

“It goes back to really leaning into your relationships and nurturing those fires,” she said. “And then it’s about branding why you’re different and unique.”

Buyers are also starting to look at a home differently – as a whole package, lifestyle included. This is especially true for many migrating to new countries.

Russians and Ukrainians with enough funds flocked to Dubai and Turkey, the latter of which has a residency program that grants citizenship with a property purchase of more than 400,000 euros.

“This is not only interesting for Russia but for Iran, Pakistan or India – [people] that are basically moving more towards Europe,” Ms. Baggen said.

In Asia, that move is away from Hong Kong and mainland China to Singapore and parts of Vietnam.

“It’s not only about buying a home, it’s about all of these other criteria that matter – immigration by investment, tax rates, lifestyle, weather,” Ms. Baggen said.

The experts agree that 2023 will begin a period of the housing market correcting itself. Which does not mean that sellers and buyers are disappearing.

“The demand for housing is still there – it has not gone away,” Mr. Heym said. “Things are moving, in some sense, in the right direction.”