Until recently, Los Angeles was the flamboyant center of a hot national real estate market. Demand was high, inventory low and stories of binge eating with increasing cash offers from multiple buyers were common.
But things calmed down earlier this year. Nationally, house prices peaked in April after two years of double-digit gains spurred by ultra-low interest rates. Inflation hit its highest level in 40 years in June. The Federal Reserve raised interest rates, lenders followed suit and mortgage rates hit a 20-year high in October. The luxury home market was particularly hard hit, falling 28% nationally year-over-year in the third quarter.
Fulton Management’s commercial director Eric Fulton says the impact has been noticeable with his clients, who range from stars such as Chris Hemsworth and Channing Tatum to up-and-coming digital influencers.
Previously, “we had between 10 and 20 refinances or purchases going on at any given time,” says Fulton. “Now it’s really a slow dribble.”
This West Village townhouse offers a lavish New York living experience.
But there’s no reason to panic, according to Josh Flagg, one of Beverly Hills’ top real estate agents and star of the Bravo reality series “Million Dollar Listing Los Angeles.” “The market was on fire and I think it just cooled off,” Flagg says. “It’s not like the crash of 2008. People are a little more timid today and don’t want to pull the trigger so quickly.”
Instead of a dozen potential buyers outdoing themselves in a bidding war, it’s now more common to get three or four, curbing the steep price rises seen in recent years and keeping homes on the mend. the market longer.
“Before, we had people trying to close in a short time saying, ‘I don’t want to do termite inspection, I don’t want this, I don’t want that,'” says business manager Jack Sinoryan. of West Manhattan. “It was a seller’s market and I think we’re going the other way where in the next few months buyers will have more power in these transactions.”
Today’s higher interest rates mean higher monthly mortgage payments for buyers, but, at the same time, they have stabilized prices, which has helped to mitigate the net impact.
This penthouse at the top of the Puck Building in New York is presented as a home, a pied-à-terre or an investment.
Summit Business’ Steve Shapiro recommends that his clients take out a loan with a lower variable interest rate and then refinance or request a rate change when the interest is lower. “Ultimately, the average customer doesn’t live in the new homes they buy for more than seven years on average, so an adjustable rate is optimal,” Shapiro says.
Wealthy personalities in the entertainment industry also have other advantages, such as privileged relationships with their banks. “Banks want to keep or manage their money, so they get rates that are better than the average consumer,” says David Solomon, real estate agent at Douglas Elliman Brentwood which has sold more than $1 billion in Los Angeles. domain.
According to real estate agent Linda May of Linda May Properties of Beverly Hills, before interest rates spiked, high-end buyers often paid cash for a property and then financed so they could reinvest the money in properties. investments that could potentially earn much more than the 3% interest they were paying on the mortgage.
During the pandemic, many in the entertainment industry have found themselves with time off or at least more alone time, prompting them to re-evaluate their lifestyles and finances. This has led many to take advantage of the accumulated equity in their California homes and move to a state with low or no income taxes such as Tennessee, Texas, Nevada and Florida, where they could get their money’s worth exponentially. , or simply buy a second home.
It’s debatable whether the recession can affect homes in Malibu, including this one overlooking the Pacific.
Business manager Tony Peyrot of Dunn, Pariser & Peyrot warns that those looking to take advantage of the tax benefits should better ensure they can prove that their home in this low-income or tax-free state is truly their primary residence, from lest they attract unwanted attention from tax collectors.
“You can’t just have a big house here in the Westside [of L.A.] then go buy a condo in Vegas or Nashville,” says Peyrot. “You really have to go all out because where you spend your time is one of the biggest determinants of your residency in the state. They watch where your doctors are, where you bank, and where you eat. And with credit card and debit card statements, it’s pretty easy to keep track of that stuff. »
In New York City, many fled the city’s congestion during the pandemic and bought homes in more bucolic and upscale neighborhoods, including the Hamptons, where they were able to break out of lockdown by self-isolating with loved ones. “They were worried about getting sick and they wanted to be where there was room,” says Anthony Bonsignore, New York-based business manager of Altman Greenfield Selvaggi.
But with the recession of the pandemic, some of these buyers regret their choices. “Now people who paid a little too much for properties want to come back to town,” Bonsignore adds.
This caused problems for the owners. After soaring demand for rentals in the summers of 2020 and 2021, Hamptons landlords were already struggling to find renters in early 2022 as travel restrictions finally eased, driving down the median rental price. in the region of 26% in the first quarter.
When it comes to investments in office buildings, the picture is bleaker in the long term. People still need a place to live, but as the shift to working from home and hybrid working hours continues post-lockdown, demand for office space appears to drop significantly, especially once the leases signed before the pandemic expired.
Venice is set with highly upgraded modest homes like this gem.
Charles Coleman DevelopingArch.c
“I think rents are stable in the best areas of the Westside, like Santa Monica, Beverly Hills and Century City, but I think we’re in a bit of a bubble in Southern California,” says Steve Levitt, chief commercial officer of Sobul. , Premiums. & Schenkel. “With some clients who own properties in places like Arizona and other states, we’re much more concerned about vacancy and the impact on pricing.”
Multi-family properties, including apartment complexes, tend to be better bets. Christopher Curry of Forward Business Management had a client who sold five California properties that were earning $40,000 a year and used the proceeds to purchase 130 units in Texas that are now earning around $850,000 a year.
“I have a network of real estate professionals across the country, and when I meet a new one, I say, ‘Find a lawyer and a property manager that you like, then show me the properties that have higher capitalization rates, depending on the market, 5 [%] or 6%,” Curry says.
In many cases, wealth advisers place their clients in real estate syndicates with pools of investors buying large properties that have a stable cash flow, ranging
from apartment buildings and mobile home parks to mini-malls and storage facilities.
“We are looking at data from several decades, and we have to assume that over time things will evolve in the same way, so we continue to go up, even if we are currently in a small correction phase,” says the director. commercial Jordan Josephs of SingerLewak.
The consensus: Whether the property is commercial or residential, it’s best to view real estate as a long-term game, and if you buy a home in California, it’s hard to lose if you keep it for more than a few years. Plus, when it comes to Southern California’s hottest regions, including Beverly Hills, Bel-Air, and Malibu, there’s cachet that transcends market trends, especially if you’re a billionaire from another country looking to buy a second or third mansion or a pied-à-terre by the sea.
“The weather is beautiful,” says May. “I think it’s a place where everyone wants to be, if not full-time, at least part-time.”