Orange County’s coastal cities, with their deep beaches and panoramic Pacific views, have long enticed luxury homebuyers. In 2015, the communities enjoyed a year in which sale prices closed as high as 96% of list in spots such as Newport Coast, Emerald Bay and Corona del Mar, according to online real estate aggregator Zillow.
Luxury real estate experts Gary Legrand, president of Surterre Properties, Natalie Rainey, real estate specialist with Villa Real Estate, and Sharran Srivatsaa, president and chief innovation officer of Teles Properties, agree that 2016 will continue the trend. They share their insights for the year while addressing today’s most pressing real estate questions:
Q: Mortgage rates appear poised to increase this year. Will this affect the luxury market in Orange County, and if so, how?
Legrand: Normally, higher rates curb the upward trends in housing markets. Our OC luxury market is no different. However, even with the gradual increase we have seen lately, I don’t believe that the increase or anticipated future increase will have a negative effect on our market for 2016. In addition, our luxury market in 2015 has seen 40% cash buyers that do not look at the rate factor to make their buying decisions.
Rainey: The majority of luxury real estate buyers in the over $3 million market are typically “all cash” and not interest rate sensitive. However, a .5% rate increase will affect the purchasing power of the typical buyer putting 20% down.
Srivatsaa: After seven years of close to zero interest rate guidance, and continuing the streak of nine years without a rate hike, we project two small interest rate hikes a year for each of the next two years. We are still in a historically low rate environment with a guidance for higher rates around the corner, giving consumers an educated opportunity to make sensible decisions in the coming year related to cost of capital.
Q: Luxury home prices increased at a slower rate last year than in 2014 and 2013. Do you think this trend will continue in 2016, and if so, why?
Legrand: It’s not hard to find an article that states that the general consensus among housing economists and analysts is that the U.S. housing market will slow as we continue into 2016. I think that OC will buck that prediction and experience a slow but steady growth in 2016. I base my prediction on Surterre’s sales over the past two years, which grew from $2.4 billion in 2014 to $2.5 billion in 2015.
Rainey: The market recovered quickly in 2014, with prices increasing 20% to 25%. To continue such a steep climb in 2015 would have been inconceivable, thus the price stabilization we experienced throughout the course of the year. Since inventory is still relatively low and prices are holding firm, we expect a strong first half of 2016.
Srivatsaa: We know that prices track closely to demand drivers and supply dynamics in the individual market. With a return to balanced inventory levels combined with healthy demand drivers, we project the return of stability to pricing across the board and the beginning of moderate —approximately 4% to 6%—annual growth in pricing and values.
Q: How does inventory affect the luxury home buyer?
Rainey: If inventory is low and a luxury homebuyer cannot find what they want on the open market, they are apt to pay top dollar for an off-market pocket listing that meets their need.
Srivatsaa: Over the last few years, we have seen the erratic inventory levels across macro markets begin to rebalance and move towards a less volatile state. There are various micro markets that are still recalibrating and that present short-term, tactical opportunities for buyers and sellers based on the individual market conditions. However, we project that many of these individual market opportunities will normalize during the course of 2016.
Legrand: Inventory is higher this fourth quarter than in 2014. Healthy and balanced inventory is a good thing, and it helps keep what I like to call a neutral market instead of a buyer’s market, when inventory is too high, and a seller’s market, when inventory is too low.
