Long known as the city of giant spec mansions and celebrity homes, Los Angeles and its luxury market have been going through an interesting transformation. While $30 million homes can sit without a buyer for months or even years, vacation homes in the $5-$10 million range are getting snapped up faster than ever before.
Top luxury broker and founder of The Agency Mauricio Umansky tells Inman that this has to do with both the current pandemic climate and unrealistic developer expectations. After the virus broke out, affluent residents started looking for a nice, amenity-rich house in which to spend the summer. Both the vacation home and rental markets soared at a time of limited inventory and construction, but instead of investing in those properties, developers are still hoping that a $30 million spec mansion will be their claim to real estate fame.
“One of the problems that we’ve had is that developers got very excited about building only the ultra-luxury homes,” Umansky says. “We need luxury homes, not ultra-luxury homes.” We talked to Umansky about what is happening with luxury real estate in the city this summer. The interview has been edited for length and clarity.
Inman News: What has the L.A. and wider California luxury market been like this summer?
MU: Markets are strong and that’s the bottom line. We’re seeing a huge exodus of people buying their second homes. That’s where we’re really seeing luxury being bought. Napa Valley, Sonoma County are seeing a huge exodus. Marin County in Northern California and Malibu are having tremendous years.
Everybody who has money really wants to buy a second home. Palm Springs, Palm Desert have managed to see super-high sales. Beverly Hills in Los Angeles is strong. I wouldn’t say it’s been stronger than last year, but it’s definitely on par with the recovery.
We have not seen ultra-high luxury property sell. The only thing that has sold in the ultra-high-luxury space [recently] has been when Bezos bought property and [the sale of] Casey Wasserman’s house, the Foothill Estate, for $68 million. We’re definitely seeing a slower ultra-luxury market in Los Angeles but the luxury market is on par with last year. It’s just phenomenal. Overall sales, overall volume is on par with last year month-over-month.
Why the discrepancy between ultra-luxury real estate and luxury real estate?
Multiple reasons. A) That clientele already has multiple homes. B) Generally speaking, those have been deals by international buyers and buyers from New York. There is not a lot of traveling going on so a lot of the purchasing has been put on hold.
So what kinds of homes are selling now?
People are looking at homes as a sanctuary and as a place to sequester. The home has become a much more important asset now than it ever was before. People want land, people want space. Trend-wise, people are looking for multiple rooms. The home office. A gym.
The days of one big beautiful room for entertaining are less and less. It is a beautiful design, and people love it but when you’re sequestering at home and you have three kids, you’re realizing that you can’t all be in one room for three-and-a-half months straight.
Now that California is seeing new cases of the virus and closing some businesses up again, do you think that this will start to show on the real estate market?
I have mixed emotions on that. Real estate is still an essential business in California right now. Short-term, I don’t see it taking a hit but, long-term, the effects of the economy and unemployment are still [to be determined]. I’m talking 12 months, post-election.
What kind of numbers we will start seeing depends a lot on what happens with the stock market and the world. The stock market has been steady and so people are feeling that they still have some money and are reallocating assets. I think we’re going to see that. There’s still a lot of buyers looking and there’s still a lot of inventory out there. There’s still a lot less inventory than buyers and buyers are frustrated because they can’t find anything.
Why is inventory so low?
People are hesitating to put their homes on the market. California is definitely not keeping up with new construction needs and that’s creating really low inventory. The banks are loosening up and lending again which is a great sign. For a while they stopped lending and that was difficult.
There are some great opportunities right now for developers to get into the game because there is a lack of housing and developers seem to be scared of the future because nobody can predict it. There’s not a lot of people building and I predict that’s going to cause a greater shortage of homes. If you’re building one of them, you have a great opportunity.
One of the problems that we’ve had is that developers got very excited about building only the ultra-luxury homes. We need luxury homes, not ultra-luxury homes. We need $6 million homes, we need $8 million homes, we need $12 million homes. We don’t need another $30 or $50 million home. If you build $10 million homes in Los Angeles, they will get swooped up in a nanosecond.