Los Angeles Business Journey

High-end Homes May Face Lower Demand

Developers and brokers of high-end homes in Los Angeles are seeing cause for concern in East Coast luxury markets such as New York and Miami, where prices have softened and sales volume has waned.

The market for homes priced at less than $3 million remains robust, agents said, as inventory is still tight. But the pool of buyers is limited in the high-end market for homes priced above $10 million, and as developers have rushed into the market there is concern that Los Angeles could be on the cusp of a glut.

“I’ve never seen more construction in Los Angeles than in the last two or three years,” said Greg Harris, an agent at Compass brokerage in Beverly Hills. “There’s more high-end inventory than we’ve ever seen.”

Harris cited Bel Air as an example of this development trend.

“Up until a couple years ago, you would see new construction everywhere but Bel Air,” he said. “But now you see it in Bel Air, which was typically an old-money neighborhood that didn’t change hands much.”

Agent Sam Real of Nest Seekers in Beverly Hills said there are more than 40 homes priced between $15 million and $35 million under construction in Beverly Hills and in the Hollywood Hills’ Bird Streets, which will gradually hit the market around the same time.

“You are starting to see abundance of inventory in a price point where your buyers pool is just not as large,” he said.

A number of homes priced between $10 million and $20 million in Beverly Hills have already experienced 5 percent to 10 percent price drops this year, according to real estate data firm Zillow.

Those price chops could be an indication that sellers were pricing their homes aggressively in order to test the market and realized it wasn’t as hot as they had anticipated, said Oscar Wei, senior economist at the California Association of Realtors.

Sellers might also be adjusting their prices because buyers are realizing they can’t afford as expensive a home in light of rising interest rates. The 30-year fixed-rate mortgage averaged 4.23 percent for the week ended March 23, according to Freddie Mac. That’s up from 3.71 percent a year ago.

It was also suggested that political and economic uncertainty could be a contributing factor. Some potential buyers might be concerned that dramatic political or policy changes could devalue their investment.

“There’s a tremendous amount of uncertainty for tax policy, health care policy, fiscal policy – these are all big pieces of the American economy,” said Rodney Ramcharan, director of research at USC’s Lusk Center for Real Estate. “There’s also the potential risk that the Trump administration could inadvertently stumble into some kind of global conflict.”