What’s Up With the Housing Market?

The US housing market has been in dramatic flux since 2022, plagued by oppressive inflation, soaring rental prices and mortgage rates, and swelling demand made worse by a shortage of housing inventory. The continued influence of the pandemic has also reshaped where we live: Ever since 2020, remote work has had many former homeowners from Northern metro areas permanently setting up camp in Florida and elsewhere in the Sun Belt, driving up housing prices in once-affordable cities. (Average home prices in Tallahassee, for instance, surged by just over 30% year over year, according to Redfin data from February.) For designers whose income often hinges on clients’ moves to new homes or renovations of existing ones, keeping a finger on the pulse of these events can be a savvy technique for planning new business strategies.

What’s the current state of the housing market?

According to the National Association of Realtors, in January 2023, sales of existing homes fell for the 12th consecutive month. Last week also marked the sixth in a row that the 30-year fixed rate saw a hike, hitting 7.03% last Wednesday. (This week is a different story, with the fallout from Silicon Valley Bank impacting the market—on Monday, mortgage rates dropped to 6.57% and are now hovering slightly higher.)

The median existing-home price for all housing types in January was $359,000, an increase of 1.3% from January 2022. That said, pending sales (which lead existing sales by one to two months) looked promising, as their figures increased for a second consecutive month—up 8.1% from December 2022. In terms of new builds, though, The National Association of Home Builders reports that sales are down 19.4% compared to a year ago.

Should I be worried about the luxury market?

It definitely isn’t sunshine and rainbows. According to Redfin data for the three-month period wrapping at the end of January, luxury home buying dropped 44.6% year over year—the second lowest level in the company’s records, which go back to 2012. Some of that is due to the sky-high sale volume of the pandemic: The higher they rise, as they say, the farther they have to fall. The lackluster performance of the stock market in early 2023 didn’t help either, as luxury buyers tend to hold more assets there than non-luxury buyers.

But it isn’t all bad news. “Buyers are still engaged and asking their agents to tell them when something interesting comes on the market so they can act quickly,” says Philip White, president and CEO of Sotheby’s International Realty. “What we also found through our 2023 Luxury Outlook report is that, more than ever, buyers are expanding their searches—both internationally and domestically—to find a good deal.” White adds that his company saw examples of that trend in 2022, as the US dollar strengthened against the dwindling Euro. “I envision buyers will continue to look for opportunities,” he says. White adds that luxury sales are often driven by emotion, so “some buyers and sellers may wait for more economic clarity before making decisions, although many of our agents have seen significant activity on the East and West coasts over $10 million, and one of our affiliates in Missouri just sold a property for $13 million, which was one of the state’s priciest homes.”

Despite the general gloomy economic headlines, Bill Caleo, founder of The Brooklyn Home Company, believes that people are willing to invest in the quality of their abodes more than ever. “In recent years, selective design renovations offered an easier option for upgrading amid increased construction costs. Now that material costs have come down 30 to 40% and subcontractors have become available, new development is flourishing again and offering a preferable option for buyers who want turnkey homes with boutique offerings,” he explains, singling out The Butler Collection, a series of chic residences in Brooklyn’s Park Slope neighborhood that his company built using Passive House principles.

Work hasn’t waned for Jeffrey Weisman of San Francisco design firm Fisher Weisman Brugioni either. “The housing market at the high-end is experiencing relatively small ups and downs, and frankly these do not seem to affect our clients. What we are hearing is how soon can we start and how can we make the next house the most fabulous we’ve ever had? It’s full speed ahead everywhere we look,” he says.

What are the hottest cities in today’s housing market? 

Of course, location matters too.  Andrew Wachtfogel, cofounder and president of new development at the New York brokerage Official Partners, points out that “real estate markets are hyperlocal, so national trends you read in the news shouldn’t necessarily be used to make decisions in your own markets. [Though] certain cities and segments of the market have slowed, many areas are thriving.”

One of these locations is Texas, where AD PRO Directory designer Paloma Contreras is continually sought after for her design savvy. “I live in Houston, [but] a lot of my work is in other cities, so it helps to not rely on a single pool of people. At present, we are kicking off several large-scale new builds for clients who have not been fazed by what is happening in the overall economy,” she says. “However, we also have a couple of clients now who had originally thought about building, because there is still such a scarcity of inventory, who ultimately decided to renovate their current homes instead.”

Is 2023 a good year to renovate a home?

Revamps can be an equally rewarding route for designers to embrace during this strange real estate limbo. Peter Spalding, interior designer, cofounder, and chief creative officer of the design platform Daniel House Club, notes that there is a “major housing shortage and people need places to live, so I don’t think the new construction market is screeching to a halt, but, if it were, a designer with a great team could easily pivot.” He thinks that designers shouldn’t pigeonhole themselves into one genre but think of themselves as a “film studio, ready to craft and edit whatever story is being demanded of them at the moment.” Key to demonstrating this flexibility? Having “an A+ team of vendors and contractors” at the ready who can help designers tackle whatever project comes their way.

Designer Megan Evans runs her eponymous studio out of Covington, Louisiana, and she believes that “focusing your skill set on renovations and purely decorative upgrades is a great way to keep revenue streams flowing” in the absence of overhauls and new builds. “Your team can take on these smaller types of projects and turn them around quicker. Even if the client can’t invest in a renovation, people will always want to freshen up their homes with paint, furniture, and soft goods. Packaging this type of service with a set number of hours is a wonderful way to sell it.”

Is this the year to expand your empire?

Evans’s approach meshes with that of Contreras, who is an advocate of designers diversifying to “have more than one stream of revenue. In addition to my design firm, I also have a retail store, product collections, and am working on my second book,” she elaborates. 

Even if construction is more sluggish than normal in certain cities, there are plentiful opportunities in adjacent spheres, like furniture design. Some potential clients are “likely hunkering down and thinking about buying the furniture they’ll keep forever. Furniture sales can be profitable for designers,” Spalding says. “They should be making a 30 to 40% margin on these types of transactions.”

Most importantly, Wachtfogel advises designers not to lose sight of the big picture. “Chances are that that small renovation a designer does for a client this year will lead to more renovations next year,” he points out, “or even a full-scale new build in the future.”

You can read the article on ADPro here