The only thing that can slow the global luxury market in 2022 is … greed.
“It’s impossible to underprice a property in this environment,” says Bradley Nelson, chief marketing officer of Sotheby’s International Realty, which released its 2022 luxury outlook report on Monday.
A potent combination of sky-high bonuses, accelerating intergenerational transfers of wealth, low interest rates, and the specter of inflation “makes investing in a concrete, fixed asset like real estate attractive to many as they balance their portfolios,” Nelson says. The environment is such that, no matter how low a property is listed, demand and competition will push its price to the top of the market.
“We brokered a co-op sale in New York,” Nelson says. “The asking price was $40 million, and there were multiple billionaires interested in purchasing it at the same time,” he continues. “The market is a living, breathing thing, and it’s going to give you feedback when fresh, desirable inventory comes on the market.”
Conversely, Nelson warns, aspirational pricing won’t be rewarded.
“It’s certainly possible to overprice a property,” he says, citing the Los Angeles market, where multiple houses have recently taken more than $50 million price cuts before they sold. “But ultimately, with some of these ambitious asking prices, I think it’s a strategy of price discovery.”
Overall, the report found that trends that began in 2021—cooling demand in the suburbs, accelerating prices in the exurbs, and a resurgence of sales volume in urban centers—will extend into this year.
“You’re seeing a return to normalcy in suburban markets,” Nelson says. “It’s now being driven by those traditional life events that have fueled the suburbs for generations.”
Longer, But Fewer, Commutes
Instead, he continues, the impassioned demand has shifted farther afield, as buyers who need to commute only a few days weekly look for more land in such areas as Trousdale County, north of Nashville; Dripping Springs and Cedar Park, to the south and north of Austin, Texas; respectively, and the Hudson Valley, north of New York City.
“The real estate market is now being driven by hybrid work vs. remote work,” he says.
The Sotheby’s report quotes one Hudson Valley broker who says that people looking to spend between $600,000 and $700,000 “used to be considered a good buyer,” but that now that designation has been pushed up to the “$1.5 million to $2.5 million range.”
Tax considerations continue to drive luxury purchasing decisions.
“That’s really the headline in both the United States and internationally,” says Nelson. “You’re going to see the greatest investments continue to be in tax havens.”
The lack of state income tax in Texas and Florida will help those states’ luxury markets retain their luster, he says, while tax increases in countries as disparate as Oman, Ireland, and Canada, which just instituted a 1% tax on the value of homes held by nonresident, non-Canadian owners, could adversely impact luxury prices.
Finally, Nelson says the biggest impact on luxury real estate is gradually going to become apparent over the next five years: “Transacting in crypto,” he says, “is going to grow in exponential ways.”
It’s only logical, he says.
“If wealth creation drives a market, and crypto is driving wealth creation, then I think there’s going to be an increased demand for that kind of payment, as opposed to cash.”
What could slow the luxury housing juggernaut? Lack of supply.
“What a wonderful time to be a property developer,” says Nelson.
“If you’re building a luxury condo development that’s going to deliver a substantial number of new listings and inventory in 2022, I think you’ll look back at this moment in five years and think you were a genius.”
There’s the possibility, he continues, that inventory will open up only when prices become too high for homeowners to ignore.
“The question is: When does the market unlock, and supply and demand equal out again?” It is, he concludes, the same as asking, “How high do prices have to go where someone who owns multiple properties says, ‘The demand is so high, it’s time to sell?”