Is luxury real estate turning over a new leaf?

The end of each December always seems to bring a feeling that the tolling of midnight on December 31st will bring about a change in the New Year — better fortunes, better resolve, and better luck. However, isn’t the reality that trends tend to slip seamlessly from one month or one year to another; with some holding their patterns for longer than others, while others create larger or smaller impacts than expected? Can 2022 really be that different from 2021?

Certainly, most years in real estate see ups and downs with respect to sales, prices, and inventory levels, with 2021 being a beyond exceptional year for the luxury market. A recent report stated that there was a historic rise of properties sold in the €1-5 million range between January to August 2021, by 142% for single-family homes and 129% for attached homes,
compared to sales in 2019 for the same period.

So how is it possible to predict that 2022 will be a calmer year for the luxury real estate market? Are trusted trends really expected to return, including a spring real estate market with increased inventory levels, which, in turn, may help to create a plateau for price increases?

Past and current trends combined with analytics are often our best guides. For instance, the month of January has always reported a quieter month for real estate transactions, specifically for single family homes, except for sunshine destinations such as the Costa del Sol as snowbirds head south to avoid the colder weather patterns of the north.

In fact, trends are showing that a price plateau is more than likely for at least the first quarter for 2022, as both single-family and attached property median prices have remained fairly consistent since October 2021. Inventory levels, which tend to fall in the last quarter of each year and not pick up until March of the following year, are also following normal trends, although at a much lower level, as the number of luxury homes for sale has hit a 20-year low.

It is also possible to predict that luxury real estate customers will continue to create a strong demand for luxury homes in 2022. The data for January 2022 already shows this strength of demand with single family home sales increasing 29% and inventory decreasing 28% over January 2021. On the luxury attached side of the market, inventory is down 42% and sales are up 30%, year over year.

This level of demand continues a trend started in June 2020, created initially by pandemic. However, the spring 2021 buying frenzy trend is not expected to continue because of the escalation of luxury prices, increasing levels of homes anticipated to enter the market, and importantly the change in buyer priorities. Instead, 2022 should see affluent buyers take a more considered approach and make more discerning decisions about property values, which will naturally slow the pace.

While the demand for the luxury real estate market is not turning over a new leaf, there is certainly an appreciation that a leaf has been turned when we look at the other ongoing trends; including a greater diversity in location choice, property types, ownership levels and what amenities have become major priorities for wealthy homeowners.

For luxury real estate professionals, more importance will be need placed on fulfilling their client’s future “must-haves”, which were once “wants,” and recognition that, due to inventory constraints, this will often entail a longer search because their buyers are now focused on making longer-term real estate decisions.

These decisions are also no longer only about buying or living full-time in their larger metropolitan cities and having a second home as a vacation property. Expectations are that the luxury real estate market customer will continue purchasing homes in multiple destinations, or changing their primary residence locations, or even choosing to co-live between two or three full-time properties in diametrically opposite locations.

That being said, the claim that people are all leaving the city has been a little overblown, and there has been a substantial move back by those not ready to give up their metropolitan lifestyle. However, there has been a shift – with those returning to the city wanting much larger residences offering space as well as more sophisticated amenities and technology that addresses their health and wellness requirements.

Other wealthy homeowners are keeping their options open, keeping one foot in the city with a purchase of a pied-à-terre and their larger residence in a different location, but one that allows them to travel easily back and forth to their metropolis. Interestingly, the luxury terminology of “owning a vacation property” is gradually being replaced by “we can work from anywhere, so will be at our other home for the next few days.”

2022 is also anticipated to be a big year where we will see the luxury real estate market consumers look carefully at diversifying their asset portfolios, both for financial reasons such as tax advantages or moving their wealth from the stock market or cryptocurrency, as it will be to find properties that fulfill their need for well-being, family unity, and lifestyle requirements.

This desire to own multiple homes will be one of the factors that will keep driving the sales of the luxury real estate market well into 2022. Another will be the entrance of millennial buyers, who are either self-made, or are now gaining wealth from their family; either through a direct inheritance or because of their parents’ relocation, to a less expensive home, will free up the sold property’s realized equity.

Today’s prosperous customers who are looking to diversify say that their desire stems from wanting to own a second home in a remote or resort-style location or to capitalize on an opportunity to move from one metropolis to another.

Growth in secondary city markets throughout Europe has seen a huge jump over the last few years – due to major corporations moving in or expanding, a surge in technology company growth, and due to affordability of owning in the more luxurious locations within these cities.

The opportunity to own a home that offers five-star amenities whether it’s a fully appointed home with luxury features that include environmentally and sustainability focused attributes or a property with a larger yard, close to their lifestyle preferences with extraordinary views, these are all far more financially achievable in these new city locations.

Luxury and sustainability amenities will be the key drivers of the decision process for wealthy buyers in 2022, together with a property being turnkey. Plenty will still be ready to pay a premium not to have to deal with renovations or even decorating, and in some cases, especially resort purchases, buyers are more than willing to buy all the furnishings too.

2022 will still prove to be an interesting year in the luxury real estate market as we have yet to see the return of international buyers and investors. Still, the word “home” remains a top priority for many, and the world is finally ready to recognize the need for substantial social and environmental change.

The art of selling and buying in this market needs a critical and analytical approach, understanding the realities and setting expectations accordingly will ensure that goals are achieved. For homeowners looking to buy or sell in today’s market, we recommend working with a realtor who can capitalize on the preferences, trends, and demands in this dynamic and evolving environment.

*Published in the Institute of Luxury Home Marketing