Real estate
February 22, 2023

Why the bears may well be wrong about US homes

February 22, 2023
Head of Residential Real Estate Sales, North America

Higher interest rates and slower growth have hit US residential real estate hard recently. But there is still a positive case to be made for outlook this year.

In many parts of the US, homeowners can sometimes encounter bears on their properties.

Clips on social media of ursine visitors foraging in waste containers, frolicking in hammocks or taking a dip in pool have become ever more prominent in recent years.

In early 2023, however, the most prevalent bear activity around American homes is of the figurative rather than the grizzly variety. Bearish forecasters are prowling and growling throughout residential areas from California to Connecticut.  

This follows the US residential market’s gluttonous feast over several years, with seemingly incessant rises in home values.

However, that feast is now over, and the risk of recession is darkening the outlook.

The resi-bears’ picnic

Looking around, there is a fair amount of juicy data for real estate bears.

Home prices surged to record levels during the earlier stages of the pandemic, as many buyers took advantage of cheap borrowing conditions to relocate or buy themselves a second or third home.

Luxury residences saw some of the most frenzied activity. According to, prices for such properties were up nearly 40% year-on-year as of April 2021.1

The boom left affordability stretched. And then came the most aggressive Federal Reserve interest rate hike campaign in recent memory.

At their November 2022 peak to date, 30-year mortgage rates briefly stood at over 7%. That was their highest in two decades and far above their 2.8% level of mid-2021.2

A combination of slowing economic growth, higher  borrowing costs and high prices have already given the market something of a mauling.

The S&P CoreLogic Case Shiller 20 City Index – which tracks prices in 20 major US metropolitan areas – was down some 4.6% from its June 2022 peak as of October  2022.

Transactions in high-end properties seems to have come off worst. Data from Redfin, a real estate brokerage, showed a 38% decline in year-over-year in sales as of 30 November last year, compared to an 31.4% decline for the wider market.3

In Manhattan – perhaps the most iconic urban center for luxury buyers from around the world – home prices suffered a quarterly decline in the last three months of 2022.

That was the first time since the worst of the pandemic in 2020, according to calculations from Miller Samuel Inc. and Douglas Elliman Real Estate.4

Over in the Hamptons, median prices for luxury properties in the same period were down 11.5%.5

In a reversal of fortunes, properties in various locations that had done best during the boom have since suffered most.

This includes hotspots such as Austin, Texas, where median list prices fell 10% in the third quarter of 2022, but with luxury properties holding up much better, says

With the claw marks of 2022 still fresh and angry, gloomier observers believe there is more pain to come in 2023.

After all, there is still a significant risk that the US economy will suffer recession this year. Some layoffs have already occurred in both the tech sector and Wall Street, whose senior employees are typically important players in local luxury real estate markets.

Another argument we’ve heard is that home price corrections tend to be delayed reactions. Those forecasting a continuation of last year’s financial market pain believe that home prices are destined to follow, albeit with their customary lag.

Skinning the bear case

We do not share the negative view of US real estate in 2023, either for luxury properties or the wider market.

Even if the US does indeed enter a mild recession this year, bloody outcomes in real estate are far from inevitable.

There’s a decent chance that a peak in Fed interest rates is in sight. Indeed, the Fed’s 1 February interest rate hike was greeted with a fall in mortgage interest rates.  

What is more, we see signs that buyers are becoming a little more accepting of rates at higher levels than prevailed during the pandemic.

Importantly, housing supply is far from abundant. A Fannie Mae report covering the top 75 US metro areas found a cumulative shortage of some 4.4 million units.7

Contrast this with the large overhang of properties that weighed down on prices in the housing crash triggered by the Global Financial Crisis.

We believe supply shortages could at least help limit any further downside.

In many local markets across the US, we see reasons for optimism, both near and long term.

Take Greater Los Angeles, for example. In the fourth quarter of 2022, “price trend indicators for luxury condos rose sharply to near records,” according to the Elliman Report.8

Likewise, the luxury condo market in Miami saw a 17.6% quarterly increase in same period.

Corporations look to set to keep gravitating toward the Sun Belt region, with demand from executives driving luxury markets in places such as Phoenix, Arizona, Austin Texas, and all of Florida.

We also see markets that have consistently attracted wealthy buyers from the US and worldwide – including New York, Los Angeles and Miami – retaining their luster for the longer term.

Once again, smaller homes are proving appealing. During the worst of the pandemic, buyers prioritized space. Now, though, smaller luxury homes are selling up to 20% faster than larger ones.

Likewise, around a quarter of those who bought under highly competitive conditions during the pandemic are now experiencing buyers’ remorse, according to The Trend Report from Coldwell Banker Global Luxury.9

This could spur activity as homeowners seek something more to their tastes.

And although we do not expect prices to fall much from here, US real estate may start looking more attractive to overseas purchasers if the US dollar keeps weakening.

The number of existing home purchases by foreign buyers came in at 98,600 in the year to March 2022, far below its 2017 peak of 284,500, as recorded by the National Association of Realtors.10 As international travel continues to recover from the pandemic, a pick-up in overseas acquisitions may follow.

All in all, then, we believe that recent housing market weakness may not last much beyond this spring. By this time next year, the main kind of bear sighting in the US residential domain may once again be furry intruders checking out the front lawn.


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1 Source: Starter Home Prices Are Soaring and Luxury Is in a Slump — What’s Going On?

2 Source: Bloomberg, as of 30 Jan 2023

3 Source: Press release - Redfin, as of 28 Dec 2022

4 Source: Housing Notes by Jonathan Miller, as of 6 Jan 2023

5 Source: Elliman Report, Q4 2022 – Hamptons Sales

6 Source:, as of Nov 2022

7 Source: The U.S. Housing Shortage from a Local Perspective – Fannie Mae, as of Oct 2022

8 Source: Elliman Report: Q4-2022 Los Angeles Sales

9 Source: Coldwell Banker Global Luxury, The Trend Report 2022

10 Source: 2022 International Transactions in U.S. Residential Real Estate National Association of REALTORS®