Foreign Demand Shrinks for Luxury Housing

Michael Nourmand is the president of Nourmand & Associates.

LOS ANGELES—Demand from foreign investors for luxury single-family houses is shrinking, according to Michael Nourmand , president of Nourmand and Associates . For the last several years, foreign investors have been driving the upper crust of the single-family housing market, but with global economic volatility rearing up and a strong US dollar, the foreign buyer pool is shrinking. As a result, the luxury housing market is beginning to plateau, with prices either stagnant or nominally decreasing and sales volumes losing momentum. To find out more about this trend in the single-family niche of the real estate business, we sat down with Nourmand for an exclusive interview. Here he talks about trends in the market and why he continues to have a positive outlook. GlobeSt.com: What is the state of the luxury single-family housing market in Los Angeles and is the market active? Nourmand: The high-end market, meaning homes in excess of $20 million, was fueled by foreign buyers the past few years. Today, most of the buyers live in the US. I would estimate that approximately 80% of the buyers right now are domestic. The dip in foreign buyers is due to lower oil prices, a strong US dollar, higher real estate prices, an international economic slowdown, and difficulty getting money out of their home countries and into the US. Fortunately, the US is still a safe haven for parking money and the long term prospects are favorable so foreign investment should continue. This market had fewer sales in the first quarter of 2016, but it is starting to gain some momentum again. This is demonstrated by a few large sales recently, which is a telltale sign this price point is picking up. That said, if you go online, you will notice a large number of properties offered for sale with plans, renderings and permits. Therefore, developers are trying to cash out rather than take the risk and build mega mansions for the pursuit of larger profits. This is a new trend that I’ve noticed the past six months. GlobeSt.com: In the commercial sector, prices are climbing to record highs. Is the luxury single-family market experiencing a similar trend? Nourmand: Prices are continuing to plateau. There are a limited number of buyers that can afford these homes and the reduction of foreign buyers has shrunk the pool of buyers. Unique homes in great locations are still selling for record-breaking prices, but if you bought a home last year, there is no guarantee that you will sell it for more this year. One example is a home that was purchased in Bel Air at the end of 2014 for $16.2 million. It has been on the market for close to a year and the price was lowered to $15.9 million a few months ago. As of today, the property is still active on The MLS. GlobeSt.com: What property characteristics are in the highest demand? Michael Nourmand: The past several years have been all about views. Properties with exceptional views were selling for record-breaking prices. While views are still sought after, buyers are now gravitating towards homes with more land rather than views. Bigger yards make it easier to entertain and they are more child-friendly. In addition, homes in the prime parts of Los Angeles with bigger yards tend to have more central locations near coffee shops, restaurants and shopping. Also, buyers are getting tired of ultra-modern homes. They still like contemporary homes with more open floor plans and tall walls for art, but the home has to exude some warmth. GlobeSt.com: What segment of the luxury market is the most active? Nourmand: The $5 million to $10 million market on the Westside has a lot of demand and very little supply. Properties have gone up significantly the past few years so homeowners have substantial equity and interest rates are very low so it’s a great time to make a move up purchase. One of the strongest markets is the Flats of Beverly Hills, which is a flat terrain in one of the most prime locations in the city. Tear downs are selling for in excess of $400 per square foot for the land and move in condition homes are trading for well over $1,000 per square foot. This neighborhood is extremely competitive. It’s common for buyers to offer all cash with a short escrow or to get financing but waive contingencies to make their offers more attractive. GlobeSt.com: What do you expect in terms of trends in Los Angeles for the remainder of 2016? Nourmand: The market should surge the next few months since the summer is peak selling season. I don’t foresee much inventory so it should be extremely competitive across most price points, which should lead to modest price appreciation. I see the high-end market continuing its current pace of occasional large deals with prices being flat. Patient buyers with good timing may be able to find good buys for trophy properties. Overall, the remainder of the year should be another banner year for real estate sales in the LA area.