Where is the Los Angeles luxury residential market headed? It depends who you ask and where they close.

Brokers are entering a final quarter of the year marked by plenty of turbulence: the presidential election, dwindling homeowners insurance options, clients struggling to accept Measure ULA taxes and, hopefully, the beginning of a cycle of interest rate relief.

“2022 has been tough, and in 2023 buyers agents have had to be very resourceful to close deals,” said Bjorn Farrugia of Beverly Hills-based Carolwood Estates, who believes business will improve over time. over the next few quarters. “Every place is different. Beverly Hills Flats is on fire; Santa Monica, Brentwood and Palisades are on fire. It also really depends on the price.

While many throughout this year have noted continued activity in homes under $5 million, a price range protected from the Measure ULA transfer tax, recent signs suggest further changes.

The bidder-ask spread between what buyers are willing to pay and what sellers accept is widening, particularly in the $2 million to $3 million range, pointed out Michael Nourmand, president of Nourmand & Associates, based in Beverly Hills.

He cited a few of his own ads in this range. One received an offer $1,000 above asking. Nourmand thought the seller would be happy. Instead, he read disappointment and perhaps irritation from the customer. The seller’s solution: relist at a higher price, thinking that new buyers are entering the market every day.

“It’s not an easy strategy to use your real estate agent,” Nourmand said. “Vegas doesn’t like this decision.”

He also noted a more recent uptick in transactions conditional on buyers selling their property and speculated that this trend would likely continue until the election.

There are also more escrows, said Anthony Marguleas, founder of Pacific Palisades-based Amalfi Estates.

“There’s a lot of anxiety,” Marguleas said. “Buyers go into escrow and become nervous for a variety of reasons, either due to the condition of the property – once inspected – rising mortgage rates, insurability issues, election uncertainty or the economy.”

This nervousness highlights that there are still challenges ahead in the market, even with some positives, like the Federal Reserve’s interest rate cut in September.

“What is helping the market is lower interest rates, but what is hurting the market is concerns about the potential recession and the upcoming election,” Nourmand said.

Elections, political speech

Much depends on macroeconomic and regulatory factors, brokers say. In California, there are several points of market impact.

Insurance companies have either left the state or given up on writing new policies amid rising construction costs, wildfires and restrictions on how much companies can raise their rates.

“Insurability has been a major issue with all the major fires that have caused some insurance companies to pull out of California, so we are seeing some insurance premiums double or even triple,” Marguleas said.

In other cases, clients are bothered by their own wait-and-see attitude regarding election results.

Historically, elections tend to slow down business, noted Marcy Roth, California managing director of Douglas Elliman’s Eklund Gomes team.

She mentioned a recent buyer who was hesitant to buy during an election year. Roth offered a practical view: “At the end of the day, the country will still be here when the election is over. »

The same will be true for the ULA measure, which was unable to allow voters to decide in November whether or not to cancel real estate transfer taxes. Many sellers appear to have accepted ULA, while others are still looking for loopholes to circumvent its payment.

The tax, which took effect last April, currently applies a 4 percent tax on properties sold for $5.15 million or more. A 5.5 percent tax goes into effect for transactions of $10.3 million and above. These thresholds are updated every year and are linked to the consumer price index.

Roth said she had a listing of more than $24 million and the seller was concerned about the impact of ULA.

“A lot of these developers started building well before ULA,” she said. “Since then, costs have increased. Many of them would not build at the moment.

The other side of the coin is another Roth client who purchased his home for a significant sum and is now prepared to take a loss as a seller.

“(ULA) is always at the forefront,” Roth said. “I think last year people were paralyzed by it. Now life goes on. »

Looking towards 2025

Expectations that the Fed will continue to cut rates are helping to breathe new life into the market.

“There is the lock-in effect, where in 2021 many homeowners have committed to a low mortgage, 2.5 to 3 percent,” Marguleas said. “Now mortgages are around 6%. These homeowners are waiting for interest rates to drop because once they hit the low to mid range of 5, they will be more open to selling and buying a new property, opening up more inventory over the next year and a half.

Lower rates and a shortage of inventory will lead to increased demand that will fuel higher prices, Carolwood’s Farrugia said.

“There are a lot of people looking to buy who are not very proud to sell,” Farrugia said of the current situation.

Roth is a little more measured in her outlook, saying she expects 2025 to be “a little stronger.”

Nourmand offered a similar view, projecting that luxury would see a slight improvement due to lower interest rates, but fears of a recession will cause some buyers to remain cautious.

He added a truth likely to endure regardless of market developments: “Unique properties will command higher prices, and average properties will be price sensitive.” »