Key Trends Shaping the US Luxury Real Estate Market
The US luxury real estate market is constantly changing. The boom in luxury real estate in 2020 escalated in 2021 due to the increasing demand of buyers depleting housing inventory across the United States and putting upward pressure on prices. Some of the factors driving the surge in luxury real estate are the shifting consumer values due to the COVID-19 pandemic and historic wealth growth from the stock market, cryptocurrency gains, and rising house prices.
As people look for places to put their wealth and re-envision their homes as multi-functional spaces to live, work, and play, they also seek out bigger and better living environments. There is uncertainty among experts whether 2022 will build on this momentum or there will be a slowing of demand. To determine the factors that will dictate the luxury market direction in the future, it is important to explore some of the key trends shaping the industry in 2022.
Low inventory will be a growing pain in 2022 and the coming years. In 2021, the number of luxury homes sold versus the number listed nearly doubled, indicating high demand. Industry experts predict this trend will continue, which means a year of rising prices for luxury properties. This trend is expected to spill over to properties in private communities, well-preserved historical areas, and outside city centers.
The pandemic also influenced building activity, adversely impacting the luxury property supply chain. Lockdowns, the unavailability of skilled workers, and other restrictions slowed down construction, affecting the time and costs of constructing new luxury homes. Competition, soaring cost estimates, and postponed construction timelines will only drive the prices of and demand for luxury homes higher in 2022. As a temporary solution, some home buyers are remodeling their current houses while searching and waiting for their new luxury homes. This decision allows homeowners to prepare for the move while increasing the market value of their existing properties.
When the government urged most people to stay at home and companies implemented remote work, many homeowners saw the benefits of owning larger properties that offer a greater range of features and amenities. However, in large cities, finding spacious properties can be challenging. Because of this, homebuyers expressed interest in luxury homes being built in up-and-coming areas away from urban areas. The majority of the purchases in luxury real estate are likely to be by New York, Los Angeles, and San Francisco residents willing to pay more for luxury home features. Buying luxury homes in a less saturated real estate market enables buyers to enjoy more square footage.
Another trend shaping the luxury real estate market in 2022 is co-primary ownership. With the migrations still happening and remote work becoming the norm for many people, some high-end buyers have not fully migrated to other locations. Instead, they are swapping their secondary residence for a primary residence, which means owning more than one property in diverse locations and splitting their time based on their lifestyle choices.
Beyond mortgage rates, construction supply constraints, and inflation, experts are also keeping an eye on high-net-worth international buyers as the country lifts its travel restrictions. When international buyers return to the market, they will start competing with domestic buyers, resulting in even tighter inventory and higher prices.