StrongAppeal For Luxury Property,Despite Interest-RateHikes

As central banks continue to increase interest rates in an effort to stave off inflation, they?ve also created a drag in the overall housing market,as homeowners face higher mortgage costs For now,though,buyers are still eager to get their hands on a prime property? especially if they feel they?re getting a deal

?If it?s priced in the right range,and it?s a special property,it?s still moving,?says Chris Klug,broker and partner, Aspen Snowmass Sotheby?s International Realty Klug says that more buyers on the ultra-high-end had been taking out mortgages in the past couple of years because of ?incredibly advantageous rates,?now he?s seeing more cash buyers,private financing,and portfolio financing

?The fear of missing out that was happening last year is now replaced by the fear of paying too much,?says Michael Pallier, managing director,Sydney Sotheby?s International Realty ?While the rates are going up,[buyers] may feel they don? t have to rush because,in six months?time,prices might present a better value?

Higher interest rates are indeed causing a bit of a ?lock-in effect,?according to Jim Egan,Morgan Stanley?s US housing strategist On an episode of Bloomberg?s Odd Lots podcast, Egan explained that many would-be sellers are choosing not to sell and take on new mortgages,which could end up being two to three percentage points higher than the ones they have now As such,he said,he sees listings staying tight,protecting home prices from falling

?When buyers are comparing options,they?re considering both high prices and rising rates,?says John Cain,global real estate advisor,Pacific Sotheby?s International Realty ?If they secured a mortgage a year or two ago,they may double their interest payment by purchasing now,?he says

While prices may be decreasing from their spring 2022 peak,Egan says he doesn? t foresee a fall in home prices ?The structure of the mortgage market today is very different than it was in 2004-07,?he said during the podcast ?Over 90% of the market is fixed-rate,for one Most people have locked in their affordability,?he said

According to data obtained from the National Association of Realtors,in September 2022,the number of US$1million-plus sales was 155% lower than it was during the same month in 2021.

That may be because of the aforementioned lock-in effect, and because some luxury buyers are holding back as they wait to evaluate the impact of increasing rates on prices

In fact,in a survey of leading agents across the Sotheby?s International Realty network,more than 53% expect interest rates to affect their business this year