The luxury real estate market in Los Angeles continues to boom even as more homebuyers are flocking to other states to subsidize their income and spending.
With a huge lack of inventory of available housing – be it affordable or luxury homes – more shoppers are taking to social media to source their property leads. In an ultra-competitive marketplace, buyers do not want to get involved with bidding wars and are often paying above asking price to push their home purchases into escrow.
Fox Business caught up with renowned real estate broker Mauricio Umansky, who also appears in “Million Dollar Listing: Los Angeles,” for his take on the current market trends and how he believes the country can remedy its affordable housing crisis given the neck-breaking pace at which the world is moving.
For the headman at The Agency brokerage, which is headquartered in Los Angeles, Umansky believes the government has a tall task ahead as it figures out and implements mitigation strategies.
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Fox Business: Do you think the trend of spending above asking price for a home is something we will continue to see this year and into 2023-24 and beyond?
Mauricio Umansky: Well, I definitely think it’s a trend that we’re going to be seeing, certainly into 2022 and into 2023. The world moves too fast nowadays. Back in the day when we had these conversations, I think we would make predictions of four or five, six years. I think that today, making predictions with the speed of the way that the world is moving, trying to make predictions that go beyond two years is just hard, and it starts becoming almost by prophecies that kind of start becoming bulls–t, if you will. The world is moving too fast. It’s changing too fast.
We live in a different world, right? The cycles are different. I think we have to understand that in order to adapt to a new world. You still have very low inventories, and you still have a lot of people that want to make changes and moves in their lives. We still have low interest rates, we certainly predict that interest rates are going to start rising. I think the government has to be cautious of how much they rise.
Fox Business: Do you think we will see a stout increase in mortgage interest rates in the foreseeable future?
Umansky: There’s a very fine line right now between inflation and affordability. And I think the government’s got a tough task in front of them. I think that the affordability from an interest rate perspective can handle some hikes, but I’m not sure that they can handle heavy hikes. And yet, you still have to control costs and inflation and lack of inventory and talk about lack of supplies – lack of employment.
Lacking of all of that stuff is slowing down construction, which therefore slows down supply, and demand is not going to slow down. So, I predict we’re going to continue to see prices go up and demand be strong for housing.
The idea of digital purchasing, I believe, is going to continue. Whether you call that social media or strictly searching on the web – be it a Zillow or The Agency website or my website or whatever. I think it’s going to be a trend that you’re going to continue to see. And particularly in California, where the contract really protects the buyer on their due diligence so you can afford to put something into escrow, put it under contract and then come and see it without having any money at risk. There are other states where you can’t do that, which are a little bit trickier.
I certainly think that the pricing and demand are going to be there so long as the government does not increase the mortgage rates too much.
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Fox Business: With respect to lack of inventory as you mentioned, is it commonplace in the luxury real estate market to purchase a plot of land and then build your home to your specifications and your dreams and imaginations versus a buyer saying, “I want something that’s turnkey and ready to move into right now?”
Umansky: No, I think that the turnkey thing is still something that the luxury buyers are looking for. They don’t have time, they don’t want to get involved in planning and designing and all of the stuff that goes on. You know, a lot of these people have lives to live, businesses to run, things to do, and they want the immediate satisfaction, and they want to move into something that they love and like now versus going into building. The difference also where you start seeing that trend that you’re talking about, which is buying land and building, come into effect is generally when the pricing of a house is a lot more expensive than buying land and building.
With construction costs being high right now, with the difficulties of labor, with the difficulties of getting supplies – I mean, right now I have clients that are waiting months to get their Viking appliances or their refrigerator and it’s slowing down their construction by a lot. And when you see that slowdown, you keep in mind that your interest payments to the bank and your cost of money don’t stop.
The only thing that stops is construction, but your spending continues and then all the headaches that come with that. So building is still not now for the ultra-luxury where you’re buying extraordinary pieces of land and you have the ability to wait and you have the ability to take time. There is definitely a trend in that because you are seeing the ultra-high net worth individuals, the ultra-luxury really double down on investments in land and wanting to own land. But it’s their third house, their fourth house. There’s no pressure to get the house ready and move into it. It’s an investment in life.
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Fox Business: It seems in recent years — certainly in recent months – many of the rental properties or apartment buildings and condominiums that are being erected are owned by corporations, which typically drives up prices for renters. Is this a trend that you believe can be rectified or regulated in any way so that it still creates affordability for people to be able to obtain housing?
Umansky: It’s a problem that we are dealing with in the U.S., and a lot of that problem has to do with the fact, again, that there’s a shortage of housing and there’s a shortage of rentals related to housing – not only housing in terms of purchasing, but there is a shortage in available properties.
As people are looking to fix the problem of supply shortage, they have to go buy a piece of land that’s inflated in cost, and then they have to build a building with apartments that are inflated in cost of wood and cement and labor and every appliance is more expensive. You can’t make the affordable housing or affordable renting pencil out with those costs being elevated.
So you’re going to have a real problem creating affordability in the rental world for business people, entrepreneurs, developers, if they can’t make something pencil out. You know, it’s a very simple formula. It cost me $100, I need to rent it for $102. It’s that simple, OK. It can’t cost me $100, and then I rent that for $95. That’s the recipe for going out of business.
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Fox Business: It’s all about the math – in the end, it has to work out.
Umansky: At the end of the day, it’s all about the math. So unless the government really gets involved with subsidizing these developers in order to fix the housing crisis – the problem is that the government, the world and the economy are very divided. You have everybody that says, ‘tax the rich, tax the developers, tax the businesspeople’ – well, you can do that but then those people that are doing the business and building the apartment buildings can’t give you an apartment that you can afford. So it’s a Catch-22 situation.