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The market took a turn toward normalization in 2022 as mortgage rates rose and sales volume dropped. Finding a new market equilibrium will remain a theme into 2023, The Agency’s latest “Red Paper” report suggests.
Mauricio Umansky
The luxury brokerage’s third annual market report compiles data and insights from the more than 60 markets across the U.S., Canada, Mexico, the Caribbean and Europe in which the company serves, and pinpoints emerging homebuyer trends, demographics and more.
Based on The Agency’s analysis, major trends to emerge from 2022 include a red-hot rental market, inventory remaining low, younger generations buying second homes first, amenities remaining a priority, a new development boom, remote workers driving the market and demand for turnkey homes, among others.
“In preparing our annual Red Paper and examining the global real estate market this past year, we can all agree there has undoubtedly been a shift and softening of the housing market around the world,” Mauricio Umansky, CEO and founder of The Agency, told Inman in an email.
“However, when you compare the market in 2022 to that of 2021 and 2020, those years were certainly anomalies and quite frankly, unsustainable,” Umansky continued. “Through our research and data exploration, we uncovered that there is still a great deal of demand, low inventory and in terms of the luxury market, it’s strong, with abundant wealth to be distributed across older and younger generations. The key takeaway is this — housing remains a primary investment for the world’s most affluent citizens and a safe hedge against inflation. Households still generate wealth from their homes and will continue to do so.”
Rainy Hake Austin
“When compiling our Red Paper findings, 2022 proved what we already knew: No algorithm or impersonal approach can compete with the hyper-focused local expertise of a quality real estate agent and at The Agency, quality over quantity is the only we we know,” Rainy Hake Austin, president of The Agency, added in a statement.
What follows are some of the key takeaways from The Agency Red Paper report released on Wednesday:
Biggest 2022 trends
A red-hot rental market
Mortgage rates that felt painful compared to the historical lows seen during the pandemic drove some would-be buyers to the rental market. This reaction in turn spurred many sellers to pull listings from the market, tightening inventory and contributing to the market slowdown, The Agency Red Paper reads.
The trend toward rentals stood out in Bozeman, Montana, which saw a less than 1 percent vacancy rate for rentals in 2022 as it has seen over the last roughly five years. Additionally, demand for rentals in New York City became so high that the average monthly rent in the city broke a new record, exceeding $5,000 for the first time ever.
Inventory was tight, new development took advantage
The shift to higher interest rates not only impacted buyers, who were now more concerned about affordability but also sellers, who pulled away from the market in response to less demand. Developers, however, attempted to capitalize on the inventory crunch by embarking on new projects in major metros and their suburbs.
Younger buyers gung-ho on second homes
Who needs a starter home when you can begin homeownership with a second home? That’s what younger generations of buyers opted for in 2022, the Red Paper notes, diving in head-first to the world of investment properties to start building equity. With the U.S. dollar still looking strong against foreign currencies, many of those younger buyers will continue to look to international markets like Mexico, Canada, parts of Europe and Asia, The Agency’s report predicted.
Amenities as a priority
Pandemic-era amenities like plenty of outdoor space, pools, home offices, sports courts and more have not gotten old in the last year, according to the Red Paper. In fact, buyers will likely continue to demand these amenities in the year to come.
Remote workers drive the market
Remote work remained prevalent in 2022, even as some companies sought to compel employees back to the office, creating a new type of demand in certain markets. Places like San Miguel de Allende, Mexico; Palm Springs, California; and Miami, Florida; drew remote workers who decided to move permanently to these traditionally seasonal markets.
Strong demand for turnkey
With supply chain delays and inflation still plaguing homeowners across the country, luxury buyers showed a strong preference for turnkey homes in 2022. Whether in a standalone property or a luxury development, turnkey properties were highly sought after.
Key market takeaways
Los Angeles
With little inventory available, many homebuyers in L.A. decided to renovate, with legacy homes also becoming popular, the Red Paper reads. The West Coast city drew buyers from the East Coast, the Bay Area, London and Australia, among other places, who sought out health-related amenities and recreational spaces.
New York City
Tight inventory in New York City caused steep competition during the first half of 2022, giving rise to an average monthly rent of $5,000 and rental bidding wars. The city saw an average of 1.5 months of inventory in 2022, according to The Agency’s data.
Mexico
Baja California saw tighter inventory in 2022, giving rise to short-term leases spanning one to six months, The Agency reported. More buyers emerged from West Coast U.S. markets, as well as from Mexico City, looking for a warmer, more relaxed lifestyle.
Riviera Maya, particularly Playa del Carmen in the north, saw a surge in popularity in 2022 much of which can be attributed to remote workers. Buyers gravitated toward villas instead of condos, looking for interesting architectural features and swim-up properties.
Canada
Toronto and Vancouver saw similar trends as the U.S. in 2022 in terms of pacing as the year started off with a bang and normalized during the second half. In Toronto, the average home price increased 5 percent year over year to $2.6 million, and in Vancouver it climbed 14 percent year over year to $2.4 million.
Meanwhile, in Montreal, the median home price dropped 1 percent year over year to $1.1 million. Bidding wars decreased and homes stayed on the market a median of 46 days.
Europe
Rising energy prices as a result of the war in Ukraine impacted homebuyers in the Netherlands, the only current European market where The Agency operates, as it did across Europe. Those steep prices encouraged homeowners to trade out their old, non-energy-efficient homes for newer ones with better insulation and other energy-saving features. The brokerage saw a number of global expats purchase homes in Amsterdam and surrounding areas, many of whom were working for European headquarters of tech companies like Uber, Netflix and Tesla.
On deck for 2023
Whatever happens with mortgage rates in the new year will have a significant impact on the market as a whole, the Red Paper notes. If they trend downward into the 6 to mid-5 percent ranges, sellers and buyers are likely to gain the confidence to start making moves in the market again.
“Even though there’s currently a softening of the market, things can change rapidly,” Umansky told Inman in an email. “Having the ability to adapt quickly in this shifting market is paramount. Agents should arm themselves with the latest data and market knowledge to ultimately prepare for what’s next.”
Having closed out a strong 2022, the luxury sector is expected to see another strong year, the Agency’s report notes, particularly with more millionaires in the world today than ever before and with markets continuing to be extremely globalized. Generational wealth is continuing to trickle down to younger generations of buyers, which will also help fuel demand for luxury properties over the next 15 years or so.
In short, though, the report notes that real estate continues to be a main investment for high-net-worth individuals across the globe and a safe hedge against inflation and something the world’s wealthy will continue to invest in.
As far as the next hottest market for 2023 goes, Umansky said destination markets, as well as affordable markets in the U.S., remain popular.
“From Aspen, to Maui, Turks & Caicos, and the Hamptons, we’re seeing destination markets continue to gain traction amongst buyers,” he said. “We also see markets such as Atlanta, South Florida, Dallas and Bozeman increasingly becoming more popular and sought-after.”
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