LIVING LARGE
Real Estate in LA
seems to follow its
own specialized lead
THESE ARE GLORY DAYS
for Southern California real estate,
with booming prices and residential
sales off the charts. This is great
news if you’re a banker, builder,
realtor, or purveyor of all the “cool
stuff ” needed to fill empty rooms,
but not exactly encouraging if
you’re looking to buy a home in a
raging market of inflated prices,
low supply, and high demand.
“The boom started when the stock market
faulted and so many investors watched their
retirement savings go up in smoke,” says Ellen Bergeron, branch
manager for Coldwell Banker in Brentwood. “Real estate is the
 obvious alternative to stocks, and this sustained strong market
reconfirms that it’s a wise investment.”
The current rush on real estate is causing problems for buyers
and sellers alike.“We’re suffering a severe shortage of inventory,” says
Bergeron.“Buyers are lined up across the price ranges, but too few
sellers will commit to selling their home because they’re rightfully
worried about finding a replacement.”
 Mary Lu Tuthill brokers prestige properties for Coldwell Banker
in West Los Angeles, home to some of the world’s most luxurious
and costly real estate. “I just fielded seven offers within days of listing
a great property in the Pacific Palisades. It sold for $3.4 million,
which was $200,000 above the asking price.”
“The flip side of that story,”Tuthill adds,“is seeing buyers bid and
lose on different homes four or five times, and still come up emptyhanded.
So many disappointed clients is not good for business, so
maybe a slowdown wouldn’t be the worst thing. Even brokers may
welcome a chance to breathe.”
Industry insiders don’t foresee that slowdown coming any
time soon, though. “Cheap money is the driving factor behind
the inflated values,”
says Laurie LustigBower,
a senior vicepresident
and partner at CB Richard Ellis in Beverly Hills. “As
long as interest rates hold low, demand and prices will remain
high. Given the domestic economy, I don’t see the Fed raising
rates by much in the next year, so no, I’m not predicting an
impending dip. But as soon as rates go back up to 7 or 8 percent,
values will shoot down, possibly by as much as 15 percent.”
To the uninitiated, prices seem very, very high in Southern
California, but those who deal with the market on a daytoday
basis still see room for growth. “So much of our prime real estate
enjoys a unique kind of shelter from conventional market influences,”
says Bergeron.“Everybody wants to live here, for the weather,
the ocean, the mountains, the great arts and entertainment. Plus,
a revolving contingent of movie stars and producers keeps the market
robust.” Meaning inflated, because the George Clooneys and
the Jerry Bruckheimers aren’t slaves to the same economic laws as
us mere mortals, so when they enter an auction, even if it’s for a
toaster on Ebay, all other bets are off.
Movie stars notwithstanding, Southern California real estate
hasn’t always been boom and glory. Investors suffered near catastrophic
losses as recently as the 90s, when property values shrank
by as much as 30 percent. “Downsizing in the defense industry had
a lot to do with that,” says Bergeron. “Ours is a fivetiered economy
that lost one of its legs when the major defense contractors
pulled out at the same time the entertainment industry began to falter.
But it all recovered, and quite quickly.”
With today’s market so overheated, surely a brutal correction is
on the way? Not so, according to Bergeron.“The defense industry
is in high gear, investors are cautious about the amount of exposure
they’ll risk in the stock market, and interest rates are at a 40year
low, which makes real estate a cheaper investment. Even if some
drastic economic shift hits, the market might slow down and dip
somewhat, but nowhere near as bad as before.”
As an obvious side effect of the current buying frenzy, the market
for rentals in Southern California is at a boiling point. Rents are
exorbitant while supply is shrinking, as landlords cash out in order
to catch the wave of the seller’s market. No one likes forking over
hardearned rent every month, and no matter how commitmentphobic
you feel about a 30year mortgage, building equity in a
home of your own makes more sense than financing someone
else’s. Beyond the incentive of low interest rates for cheap mortgages, Uncle Sam provides significant tax breaks that make buying
a home a smarter option than continuing to rent. Interest on home
equity loans up to $1 million is tax deductible, as are property taxes.
As the saying goes, time heals all property deals, and while
there’s no sure thing in any investment, the odds of success in
residential real estate increase significantly the longer you commit.
If there’s even the slightest chance you may have to bail on
a property sooner than say, five years, you may want to stop and
think. If your marriage is shaky, or your career is uncertain and
you could face relocation — or worse, a layoff — it may be wiser
to stay out of this market.
For those can afford it, though, Southern California is all about
lush green gardens, dramatic ocean views, exquisite architecture, and
lavish interior designs. Like everywhere else, the key component to
price is location.Take two fabulous homes, each on separate ends of
Sunset Boulevard.They compare favorably in architecture, size, and
quality but are $2 million apart in price, simply because one has a
beachadjacent zip code in the Palisades, while the other overlooks
the madding crowd of business, nightlife, and tourism that is the
Sunset Strip.
“My advice to anyone looking for a home never really changes,”
concludes Bergeron.“Look for the personal house, the one you can
afford, that suits your needs in location, design, lifestyle — the one
you want to live in because you love it.That way you can’t lose, no
matter how the market performs.”
— Audrey Arkins
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