Watchers of the world of L.A. real estate have been left to wonder what the rest of 2023 will look like after new housing data released this week from CoreLogic reflects a diminished market in Southern California.
Speaking to the Orange County Register, CoreLogic Chief Economist Selma Hepp said that the market is being “challenged by high mortgage rates and eroded affordability.”
Previously hot areas such as the Inland Empire cooled off by the end of 2022, and high-end residences didn’t sell at the highs that were seen in the first half of last year. Notably, Britney Spears sold her house for nearly $2 million dollars less than the original asking price. Similarly, the estate of a deceased inventor listed a Beverly Park property for $120 million, only to sell it for $52 million several months later. Zillow had priced the property at $67.5 million.
With such hard and anecdotal evidence pointing in the same disappointing direction, Angelenos might have been surprised to see the city maintaining a spot among the top three luxury markets in the world in 2022. This was according to Knight Frank, a UK-based real estate consultancy.
Kate Everett-Allen, Global Head of Residential Research at Knight Frank, explained to LAMag that “[L.A.] saw a year of two halves in 2022.” The good comes from the first half, and the less good, from the second.
“There was a sort of bitter reality,” said Everett-Allen. “As we saw the tightening of monetary policy, inflation [rocketed] around the world. The U.S. was no different and interest rates started to rise on the back of it. So I think the second half of the year, we did see buyer sentiment be impacted by that.”
Everett-Allen pointed to two confluent factors that could bode well for the Southern California real estate market—both on the top and at the bottom.
There is a strong “international bias at the luxury end of the market with cross-border demand accounting having quite a large proportion of sales,” said Everett-Allen. And although most western markets relaxed Covid-19 restrictions some time ago, many markets in Asia are just now entering the exciting post-Covid boom that spurred Los Angeles’ early-2022 real estate gains. So, says Everett-Allen, “there is still an influx of demand coming from some of those Asian markets for the first time in potentially three years.”
While top-end purchases, or lack thereof, don’t come close to assuaging the concern and insecurity at the bottom of the market, a new mansion tax, which is set to go into effect on April 1, could pair with a boom in luxury purchases to help alleviate the stress at the bottom end of the market.
Proposition ULA, as the mansion tax is formally known, promises “to add a tax on the sale or transfer of real property valued over $5 million to fund affordable housing and tenant assistance programs.” Estimates put the tax’s revenues at somewhere between $600 million and $1.1 billion, and if there is an influx of demand from overseas, the $1.1 billion might be a real possibility.
Though the mansion tax is under attack and could be repealed as soon as 2024, this analysis could be a salve as anxious Angelenos process the late-2022 and early-2023 housing numbers.
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