While buyers in more affordable ranges are experiencing massive housing shortages, that’s not the case for the Los Angeles luxury home market.
“We have a good amount of inventory,” Josh Altman, co-founder of the Altman Brothers, a real estate agent firm that focuses on luxury homes, told Yahoo Finance LIVE (video above). “Good houses still are selling.”
In Los Angeles, there are 400 available listings for single families over $5 million, representing 18% of the total single-family inventory of around 2,200 homes, according to a filter search on Redfin.com.
But there are a lot fewer buyers in this price range. A $5 million home requires buyers to earn around $850,000 a year, a bracketed range that includes less than 1% of Californians, based on data analyzed by SmartAsset. (Note: The average U.S. income is around $70,000)
“I think the buyer has the upper hand,” Altman said.
‘Mansion tax’
Luxury buyers took a breather in April, though, after Los Angeles City imposed a so-called “mansion tax” — officially known as the Measure ULA — to help fund solutions for the city’s homeless crisis. The measure tagged on an extra 4% in taxes for properties sold over $5 million and 5.5% on properties sold over $10 million. That was on top of the city’s base transfer tax.
This new measure dented demand for houses over that threshold in Los Angeles. Only two properties sold in Los Angeles in April were over the $5 million mark, compared with 126 condo and homes sold in March, one month ahead of the ULA deadline, according to the Los Angeles Times.
“We had an extremely slow April,” Altman said.
Sellers, knowing the tax was looming, tried to offload properties before April. One developer promised an Aston Martin, Bentley, or McLaren vehicle to the buyer of its $16.5 million listing, a new construction home in Beverly Hills, as long as the purchase was made before April 1.
The home didn’t sell and remains on the market, even after a price cut of $500,000.
Actor Mark Wahlberg sold his Beverly Hills mansion for $55 million in February only after a $32.5 million price drop.
“Across the board, the buyer mentality is all about a deal these days,” Altman said.
With good reason. The ULA rates are not progressive, which means the taxes are levied against the total value of the property and not just the additional amount over the threshold.
For instance, a property transaction of $5,000,001 triggers $222,500 of tax revenue, according to the city’s ULA tax calculator. The two luxury homes sold in April — at $5.7 million and $7.5 million — brought in over $500,000 for Measure ULA.
But there are signs that buyers are coming back, Altman said, noting that May was the strongest month with closings and June is “looking like it’s going to double that,” he said.
“I’m sitting in my car out front of a listing because I got a big showing,” he said, “which is always a good sign.”
Rebecca Chen is a reporter for Yahoo Finance and previously worked as an investment tax certified public accountant (CPA).
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