Luxury L.A. Home Prices Down First Quarter 2016 As Global Volatility Dampens Buyer Demand

The average sale price of United States luxury homes fell 1.1 percent for the first quarter of 2016 according to internet real estate brokerage site Redfin. The definition of “luxury market” for Redfin’s study is the highest 5 percent of homes sold in a particular quarter.

According to the Redfin report, paradoxically “home prices for the bottom 95 percent of the market maintained positive momentum, increasing 4.7 percent year over year.

Redfin reports that the “luxury home price decline was felt in cities across the country, including Miami Beach (-13.7 percent); Austin (-11.8 percent); Boston (-11.8 percent); Houston ( -5.1 percent); San Francisco (-4.7 percent); Washington (-4.2 percent); and Los Angeles (-1.3 percent).” Except for Miami Beach, Redfin found these cities only fell at the high-end, with the bottom 95 percent seeing year over year price gains.


The explanation for prices going down at the high end but not the bottom 95 percent is that the global economic volatility caused luxury buyers to put the brakes on in the face of the volatility in asset prices including the oil and stock markets.

The result was that the volume of inventory of homes priced above $5 million jumped up 13.2 percent from the prior year. Redfin explained that its numbers may understate the increased volume of inventory which may not include homes being built by speculators that are not yet officially on the market.

In the Redfin study, the top 5 percent translated to homes sold for an average sales price of $1.59 Million or more. Those prices were down 1.1 percent year over year and down 1.5 percent quarter over quarter.

The rest of the market (bottom 95 percent) was everything else (with average selling price being about $288,000). The average selling price for that category was up 4.7 percent year over year, but the selling price was down by 2 percent if the data is looked at from quarter to quarter.

CCN-BESSPIC61716The combination of the steep drop in stock prices and global uncertainty affects the super high end buyer more directly, since these buyers generally use those investment accounts to pull out large sums for all cash purchases of high-end luxury real estate.

With the U.S. dollar remaining strong, foreign buyers are discouraged from buying in the United States. Agents are anecdotally reporting a huge drop off in Chinese, Russian and South American buyers.

The Chief economist for Redfin explained further that, “instead of cheering rock bottom mortgage rates, luxury buyers recoiled from high–end spending in the face of volatile asset prices. Luxury demand, especially for vacation and investment properties, has been more fragile this year, causing prices to slump.”

It is a well known fact that the more inventory on the market, the more buyers have to choose from creating more of a buyer’s market. This creates more leverage for the buyer who can negotiate harder on price.

Buyers at the higher price points have a great deal more leverage, because the higher the price the fewer the number of qualified buyers.

Redfin reported that cities that are internationally recognized saw prices fall hard. Miami Beach which has seen a proliferation of high end luxury development saw prices fall 13.1 percent. Miami had twice as many homes for sale in 2016 as the prior year. San Francisco saw prices drop 4.7 percent in the first quarter 2016.

In Los Angeles where the average sales price for the top 5 percent of the market was $4,186,000, prices fell 1.3 percent year over year. By comparison, in Los Angeles in the lower 95 percent of the market where the average selling price was $690,000 the year over year change in sales price was an increase of 10.4 percent.

In San Francisco where the average sales price for the top 5 percent of the market was $4, 407,000, prices fell by 4.7 percent year over year. By comparison, in San Francisco in the lower 95 percent of the market where the average selling price was $1,217,000, the year over year change was an increase of 4.2 percent.

Although many sources are reporting that the surge in U.S. mansion prices is over a purported-sale of the Playboy Mansion for the price of $105 million dollars would be record breaking. The highest price reported in L.A. County prior to this was $102 million dollars.

Generally anecdotal comments from agents reflect that the sale of the Mansion, which is situated on a unique parcel of 5 acres of land in the prestige Holmby Hills area of Bel Air, to the adjacent neighbor does not herald a change in the otherwise stalled L.A. high end market.

According to the California Assn of Realtors, for the first quarter of 2016 sales of luxury homes here over $10 Million were flat. Data from the Multiple Listing Service shows no sales since the beginning of the year over $40 million compared to 2015 when there were 6 sales over that mark.

Falling foreign stock markets, and economic problems from China to Russia to South American have put a chill on the high end housing market. Demand for vacation homes and investment properties whether mansions penthouses or seaside resorts are taking a hit.

The data from Redfin is being widely quoted to affirm the dichotomy between the ultra high end market and the rest of the housing market. Generally prices in the top 5 percent of the U.S. real estate market (“the luxury market”) on average were down 1.1 percent year over year while all other homes gained 4.7 percent for the same period.

Despite the summer selling season, more sellers are listing their homes for sale and more buyers are hesitating to pull the trigger saying they are betting that the market is headed lower. With the arrival of summer, the traditionally hottest selling season of the year, it remains to be seen whether we will see a bounce in prices.

For a free courtesy consultation, contact Bess Hochman, a top Westside Real Estate Broker for over 20 years. Bess is also distinguished by holding a law degree. This article expresses the opinion of the author. You are advised to consult attorneys & others experts specializing in the issues referenced in this article. Contact Bess: 310.291.4111 or via
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