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Real estate market expects normalization this year

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Real estate market hopes for consistency this year

Image source: Curbed NY

Real estate: In 2022, there were many problems plaguing the real estate sector, including excessive prices, demand, and a lack of available properties.

As the new year begins, the market is expected to change, primarily because of the increase in interest rates last year.

Normalization

The real estate market continues to see a decline in home prices.

As a result, many in the market have adjusted their mindset to put normalization before correction.

Between March 2020 and March 2022, price increases and sales activity rose quickly and seemed unstoppable.

However, things are starting to turn.

The third quarter saw a decline in the global home price growth for luxury properties, which make up the top 5% of the market, to 8.8% annually.

According to a Knight Frank survey, it has dropped 10.9% from its peak at the start of 2022.

The report takes into account the housing cost inflation, which is decreasing by 0.3% year over year.

The markets

According to Jonathan Miller, president and chief executive officer of the New York-based appraisal firm Miller Samuel, the US markets are “coming back to earth.”

“Clearly, the pivot of Fed policy has had an impact on every housing market in the country because rates were too low for too long,” said Miller.

“It created this insatiable demand and obliterated supply.”

Jonathan Miller is worried about a recession but believes it won’t be as bad as previous ones because of a stronger labor market.

Other large cities are also facing comparable headwinds at the moment.

According to experts, Dubai and Miami, two places where huge populations frequent, will probably see no change or impact.

Read also: Why planting trees at your home is important

The New York market

2021 saw record-breaking sales activity in New York.

Since then, there has been a significant slowdown in the city’s growth that started in December and is expected to last further into the second quarter.

Deals are down, and demands have cooled, according to Bess Freedman, CEO of Brown Harris Stevens.

“The first quarters of 2022 were excellent, like superb,” said Freedman.

“And then the third quarter started to slow down, and now the fourth quarter has really slowed down.”

Bess Freedman predicts volatility in the real estate market this year as the Fed continues to raise rates to combat inflation.

She asserts that anxieties about a recession are still there despite the strong labor market.

“Real estate will be as it has been recently, which is a little bit rocky,” she elaborated.

“It’s been ups and downs. There are still a lot of people spending a lot of money on expensive apartments – we just had somebody sign something for over $20 million.”

“People are still closing and signing; they aren’t all walking away, but it’s slower,” Freedman continued.

“It’s going to be a little challenging in the first quarter and maybe into the second, but I think we’ll rebound and start picking up again.”

Dollar strength

The dollar’s massive growth remains an impediment to foreign investment.

According to Jonathan Miller, this would hurt market growth because Wall Street executives can see incentives cut by more than 30% from 2021 levels.

He said that the city would still benefit from lower rates even if there are many cash buyers in Manhattan.

New York buyers are particularly concerned about the financial markets, which have been unsteady due to the Fed’s changes to its monetary policy.

“It creates a cautionary environment,” Miller explained.

“We’re probably looking at a year closer to pre-pandemic, which was a little bit below average in terms of activity.”

“The 2023 story is going to be normalized, [and] certainly not a boom.”

Read also: Mortgage application rises as interest rates decline

The Los Angeles market

The CEO of the Agency, Mauricio Umansky, noted that changes would occur in the Los Angeles real estate market in the middle of 2022.

He emphasized that the market has changed at an unsustainable pace during the past two and a half years.

“Volume dropped while the industry’s cyclical nature and historical seasonality quickly returned,” said Umansky.

“What felt like a jolt was actually what I believe was the beginning of a rebalancing act.”

He expects Los Angeles’s luxury market to be strong this year.

“More millionaires exist today than at any other point in history,” explained Umansky.

“Markets are more globalized than ever, and there is much wealth to be distributed, especially among hyper-wealthy markets.”

The Agency’s CEO continued by explaining:

“I believe housing remains a primary investment for the world’s most affluent citizens and a safe hedge against inflation.”

“While economists predict the slowdown in volume to continue into the start of the new year, supply is still tight, and demand is on the rise, meaning price growth is still expected in the year ahead.”

A recent Knight Frank forecast indicates that in 2023, the value of prime properties in Los Angeles will rise by 4%.

Mauricio Umansky predicts stability over the following year:

“While the current market presents some points of discomfort, buyers, sellers, and agents will acclimate to our new normal until the market picks up again.”

Reference:

Real estate markets set to normalize in 2023 after nearly three years of the pandemic boom

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