Stable As Ever

The expansive growth in the luxury-home market during the Covid-19 pandemic is expected to continue in 2022, albeit at a slower pace, as low interest rates and inflation fears push wealthy individuals toward alternative asset classes, and countries reduce economic-stimulus measures.

Across the globe, luxury-home sales reached record levels in 2021. The U.K. saw a major increase in sales priced at £5 million or more during the first half of 2021, while its stamp-duty holiday was still in place. While that program has since ended, the luxury market there is expected to benefit from foreign investors coming back into the market, as travel restrictions loosen in some parts of the world.

In the six months from June to November 2021, listing prices for homes in the top 10% of the market in the U.S. were up nearly 20% compared with the same period the year before, according to data compiled by Realtor.com.

“We don’t think the current pace of home-price growth, at least in the aggregate, is sustainable,” says Joel Kan, associate vice president of economic and industry forecast, the Mortgage Broker’s Association.

Still, as inflation rates rise, and developed markets continue to debase their currency, luxury real estate could be an attractive hedge and a way to get out of paper money, says Jonathan Woloshin, head of real estate and financials research, UBS Wealth Management. With experts predicting the 10-year Treasury yield won’t surpass 3% by the end of 2022, real estate may become even more attractive.

“If you look over the course of decades and centuries, luxury real estate—with all its ups and downs—has held value and even grown in value,” Woloshin says.

In late 2021, the U.S. Federal Reserve announced that there could be three interest rate hikes ahead in 2022, and the Mortgage Bankers Association has predicted the 30-year fixed rate could rise to 4% by the end of 2022.