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  • Writer's pictureChloe Noh

The luxury market and the starter home market are showing different aspects.

There is a lot of talk about how the real estate market will change this year. Some people say house prices are going down, and some people are saying they are going up.

What is certain is that when the real estate market is broken down by price range, there are significant differences in each category.

First of all, from the conclusion, the houses in the top 10% of the market in each region have significantly slowed down the price increase or have even fallen slightly. The country as a whole is said to have risen 2.5% year-on-year at the end of 2022. On the other hand, houses with about 2 bedrooms, which are often found by young couples who are buying a house for the first time, have risen in price. These starter homes are up 15% compared to 2021, despite the slowdown in the real estate market in 2022.

You can see this by looking at the graph below. The graph below is not the price change of each price range, but the change in the “increase rate”. I'll say it again. It is a graph that does not show price changes, but rather shows changes in “increase rate”. Therefore, any number that does not fall below 0 is considered to have risen unconditionally.

Why does this happen?

Looking at the luxury market, it is said that the luxury real estate market usually has a great correlation with the stock market. As personal assets increase, the desire to move to a big and nice house increases, and since there are not many large and nice houses, the house price rises. In the past few years, the interest rate was also low, so there was room to move to a bigger and more expensive house, so house prices rose as we fought over a few luxury houses. However, in a situation where interest rates are rising and stock prices are falling, it will be difficult to feel the desire to move to a big and nice house unless you have to change jobs. Of course, this means there is no demand, so house prices are not going up.

On the other hand, in the case of starter homes, new demand enters the market every year. Newly married people, families with children, newcomers starting out in society, and so on all contribute to this demand. As I said before, the average age to buy a first home in the US is 33 years old. In other words, a significant portion of the population turning 33 every year enters the market due to new demand.

When this new demand enters the market, there must be enough new supply to support it, so that the price will not go up. However, those who already own a house do not find a reason to sell a house tied to a low interest rate and buy a new house, as the interest rate rises and the economy deteriorates. Houses are not built a lot for one reason or another, so of course the demand is greater than the supply. Naturally, prices are bound to rise. What is even worse is that the amount of demand that has already been in the market for a long time, is gradually accumulating, as house prices have already risen so fast in the last year of manufacture.

For this reason, in the current market, the price increase in the luxury market has almost stopped, but on the contrary, the rate of increase in the starter home is enormous.

If you have any additional questions about today's article, please feel free to contact me.

See you in the next article!

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