Local bias explains a phenomenon in investing in which people concentrate their portfolios in their own country. Only one nation’s stock market can perform the best, which means investors everywhere else are making a mistake.
Apparently it exists in residential brokerage as well.
A Compass survey of its agents found nearly 70 percent predicted home prices in their areas would increase next year, even as almost 80 percent said prices would stagnate or decline nationally.
Some local bias was evident in brokers’ prediction about sales volume as well, as 22.5 percent predicted it would grow in their area, but only 15.9 percent said it would grow nationally.
The more than 440 Compass brokers who responded were also bullish on cities and thought the Northeast would slightly outperform a slowing national market in 2023.
Compass CEO Robert Reffkin took a pessimistic view in the company’s third-quarter earnings call, during which he said 2022 was a “generationally bad year in residential real estate.”
“The past 12 months have been tough and the next 18 months appear that they can be tougher,” he said, adding that does not think the market will contract by 25 percent, as some have predicted.
Leonard Steinberg, one of Compass’ top Manhattan brokers, was more optimistic.
“In 2023, we may see a mirror image of 2022: a somewhat trying first half that gives way to a surprisingly strong back half of the year,” he said in a press release about the survey. “The would-be buyers that stepped back from the market in late 2022 can’t and won’t stay away forever, especially given the competing demands from first-time buyers looking to get into the market and retirees looking to move or downsize.”
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Although two-thirds of Compass brokers share Reffkin’s pessimism about the national market, which they predict will have “somewhat or much fewer” home sales in 2023. A majority said people will continue to return to cities.
Buyers, they believe, will be drawn to shared amenities as they grow less worried about Covid, and will need to return to cities in response to return-to-office policies. They also believe large yards — a big draw during the lockdown period of the pandemic — will fade in popularity.
If they’re right, it could mean business remains relatively in line with 2022 levels for brokers in major cities, while their suburban and rural counterparts see their commission pools decline.
Perhaps not coincidentally, Compass’ business is concentrated in luxury markets.
Roughly 70 percent predicted that sales volume and price growth in the Northeast, which includes New England, New York, New Jersey and Pennsylvania, will stay roughly in line with or modestly outperform the national market.
Brokers forecast that the Southeast will be the strongest market next year. It was the only region where a majority of respondents believe sales and prices will exceed the national average. The Southeast includes South Carolina through Florida and extends west to the Mississippi River.
“As the market normalizes, we expect the population in the Southeast to continue to grow, fueled by a tax-friendly environment and opportunities for job growth,” said Jeff Polashuk, Compass’ regional vice president for Florida. “This continued demand will position the Southeast for another decent year.”