CAN THE PRICE KEEP RISING FOR LUXURY HOMES IN
by Catherine Ross
The average price of residential property in Los Angeles has roughly doubled in each of the last two decades and there are plenty of luxury homes which outperformed the average. So what are the drivers, and can it continue?
There has been much discussion of top end incomes accelerating away from the pack and also the impact of low interest rates, but there’s more going on. One major factor less frequently discussed is the remodeling engine. Anyone who lives in prime Los Angeles, or any international city, will be used to what seems like permanent construction somewhere or other nearby!
Put simply, the homes for sale today (on average) are not the same as the ones that used to sell. The quality of the luxury housing stock continues to increase. This is a trend that can run for a while as higher prices support ever more ambitious remodeling, and can drive house price growth for many years as the housing stock is gradually upgraded. The cycle is accentuated in Los Angeles by the difficulty of adding to established, prime areas of the city given the natural boundaries set by mountains, beaches and freeways, and also the lack of older areas with great architecture waiting to be rediscovered.
Compared to many other great international cities, Los Angeles has been underpriced based on comparisons of $ per square foot. However, this is changing as other cities are experiencing pandemic-driven migration, while Los Angeles remains an attractive destination for individuals and companies. According to a report from Knight Frank published on April 12th, 2021, Los Angeles is now ranked 3rd place for residential transactions over $10m across the global luxury market. London came in 1st, with Hong Kong in 2nd and New York in 4th.
So when someone says that luxury home prices in Los Angeles can’t keep going up, let's think again about the drivers:
- top end incomes rising;
- the difficulty of recreating established, prime areas of the city;
- low interest rates; and
- the remodeling engine.
Your real estate agent should bring a helpful perspective to consideration of value, both the quantitative and qualitative aspects. I would be delighted to assist buyers or sellers in the process, and can give my views, act as a sounding board, or provide a second opinion as you wish, with no obligation. You can reach me by email at [email protected] or by phone on (310) 882-9589.