The Chairish Podcast: Real Estate Update – What's Ahead for the Market?
Release Date: September 10, 2024
Hosted by Michael Boudreau, The Chairish Podcast delves into the intricacies of the interior design and real estate industries amidst a landscape of rapid change. In the episode titled "Real Estate Update: What's Ahead for the Market?", Boudreau brings together three esteemed experts—Leslie Singer from New York City, Rochelle Atlas Mays from Los Angeles, and Amanda Pendleton from Zillow—to discuss current trends, challenges, and future projections in the real estate market.
1. Strength of the High-End Real Estate Market
New York City's Luxury Sector Remains Robust
Leslie Singer begins by addressing the resilience of New York City's high-end real estate market. Contrary to broader market slowdowns, the luxury segment has demonstrated significant strength over the past eighteen months.
"The high end luxury market has been fairly strong actually for the last year and a half." (03:06)
Singer cites recent multimillion-dollar sales, including a $135 million deal and a $220 million flip at 220 Central Park South, emphasizing a 22% increase from prior months. However, she notes a softer segment within larger cooperatives requiring renovations, highlighting variability within the luxury market.
Los Angeles Reflects Similar Trends with Added Demand for Move-In Ready Homes
Rochelle Atlas Mays corroborates this strength in Los Angeles, particularly in properties priced between $10 million and $25 million. The market in LA has not only maintained its vigor but has seen a 4% increase in the first half of 2024 compared to the previous year.
"Everyone wants kind of that done property. They don't want to wait to redo." (04:43)
Mays attributes this preference to younger buyers seeking instant gratification, influenced by platforms like Instagram. The demand for move-in ready homes has contributed to a shortage in available inventory, as buyers prioritize properties that require minimal to no renovations.
2. Mortgage Rates and Market Activation
Current Trends in Mortgage Rates and Buyer Behavior
Amanda Pendleton provides a national perspective, discussing recent decreases in mortgage rates and their potential impact on the housing market. Despite a slight dip towards 6%, Pendleton notes that the anticipation of further rate reductions is already factored into current prices.
"Mortgage rates have dropped significantly over the past few weeks. That does improve affordability for home buyers." (05:59)
However, she cautions that high home prices remain a significant barrier, especially for first-time buyers. The expectation of continued rate declines may lead some buyers to delay purchases, hoping for more favorable conditions.
Expert Advice on Navigating Current Mortgage Rates
Leslie Singer shares practical advice for buyers hesitant to commit amid fluctuating rates.
"The rate, buy, marry the apartment." (08:18)
Singer suggests that prospective buyers purchase now and refinance later when rates potentially drop, thereby securing desired properties before a possible surge in buyer competition.
Rochelle Atlas Mays echoes this sentiment, advocating for immediate action to avoid future bidding wars and emphasizes the uncertainties surrounding rate predictions.
"I would rather put my clients in and try and go all in now, afford what you can and then refinance it because you have a much better shot at getting a better house when your rates go down." (08:31)
3. Impact of Mansion Taxes on the Luxury Market
Mansion Tax Dynamics in New York and Los Angeles
The conversation shifts to the introduction and effects of mansion taxes in major markets. Rochelle Atlas Mays explains the recent implementation of a 1% tax on properties exceeding $5 million in Los Angeles, with higher rates for more expensive homes.
"It's a 1% at 5 million and another it's different percent at over 10 million. It's substantial though." (10:51)
This tax has led to a marked increase in luxury property inventory as owners opt to lease properties to circumvent the tax through 1031 exchanges. Consequently, rental prices in these segments have decreased by approximately 15%, and inventory has surged by 30%, particularly in coveted areas like Beverly Hills' 90210 zip code, which remains exempt from the tax.
In contrast, New York City's mansion tax, which begins at $1 million, has not significantly dampened the luxury market as initially feared.
"The graduated was came more recently. Has not had such a negative impact as we had thought it would be." (12:20)
Amanda Pendleton adds that while mansion taxes do influence the market, other factors such as limited luxury inventory and high construction costs play a more substantial role in current market dynamics.
4. Foreign Buyers and Their Role in the Market
Both Leslie Singer and Rochelle Atlas Mays acknowledge a decline in foreign buyers, particularly from China, post-COVID. However, there has been a slight increase in foreign investment in recent years, though it doesn't match the pre-pandemic levels.
"Certainly not the plethora of years before, but I would say more foreign buyers over the last couple years." (09:51)
The reduced influx of foreign capital has nuanced effects on the luxury markets of New York and Los Angeles but isn't the primary driver of current market conditions.
5. Addressing the Affordable Housing Shortage
National Efforts and Regional Challenges
Amanda Pendleton emphasizes that the core solution to affordable housing lies in increasing the housing supply. Despite a construction boom during the pandemic, with 1.45 million new homes completed last year—the highest since the Great Recession—the national housing deficit stands at 4.5 million.
"The nation's housing deficit is now at 4.5 million. That's how many more homes we need for every everybody who wants one." (18:52)
Pendleton points out that regions like Texas and Florida have managed to mitigate shortages through favorable zoning laws and ample land for development. In contrast, coastal metros such as LA, New York, Boston, San Francisco, and Seattle face significant hurdles due to strict building regulations and high construction costs, exacerbating their affordability crises.
Innovative Solutions and Policy Recommendations
Rochelle Atlas Mays highlights the potential of accessory dwelling units (ADUs) as a means to alleviate shortages, noting their legalization since COVID and their role in creating more flexible living arrangements.
"I've seen more in the outskirts like Palm Springs and those areas of the prefab housing going in and doing developments." (20:12)
Both experts advocate for loosening zoning regulations and increasing housing density in high-demand areas to facilitate greater construction and affordability.
6. Rental Market Trends
New York City vs. Los Angeles: A Divergent Landscape
Leslie Singer describes New York City's rental market as "incredibly tight," especially in the luxury segment, where demand remains high despite broader market sluggishness.
"The rental market's still incredibly tight. And I also think of when we're talking luxury rentals, it's even tighter." (21:55)
Conversely, Rochelle Atlas Mays observes a significant boom in the rental market in Los Angeles, with rentals surpassing sales and a notable increase in inventory, particularly in Malibu.
"I did way more rentals last year than sales. I've never in my life had a year like that." (22:27)
Nationwide Rental Market Easing
Amanda Pendleton provides a broader perspective, noting that while rents remain high, the rate of increase has slowed compared to the previous two to three years. With a surge in new multifamily units and a stabilization of the job market, rents are expected to continue declining, especially if mortgage rates become more favorable and facilitate a shift from renting to homeownership.
"Rents are still growing by 5% a year. And I know that doesn't sound great, but it really is a far cry from those steep rent hikes that we were seeing two, three years ago when rents were skyrocketing 22% annually." (22:59)
7. Amenities Driving High-End Real Estate Demand
Evolving Preferences in Luxury Homes
Leslie Singer outlines a diverse range of amenities sought by high-end buyers, which vary based on age and lifestyle. Features such as golf and sports simulators, community-focused facilities like in-building restaurants, and specialized spaces like music rooms and children's programming areas are increasingly in demand.
"The music room has become a very big hotspot for amenities." (26:17)
Home offices, once a staple due to the pandemic, are now evolving into more flexible spaces accommodating various needs.
Rochelle Atlas Mays highlights an emerging trend towards sophisticated outdoor and multifunctional indoor spaces, including state-of-the-art gyms, wellness centers with infrared and red light saunas, and even in-home surgery centers for high-net-worth individuals.
"There's been some that have changed, but kind of your common tier amenities for the luxury, you have to have the state of the art gym, you have to have a wellness center." (27:11)
Outdoor Features as Value Enhancers
Amanda Pendleton emphasizes the continued importance of outdoor spaces, which have become essential to the modern lifestyle post-pandemic. Features like outdoor TVs, kitchens, pizza ovens, and functional backyard spaces are not only desirable but also significantly increase property values.
"The number one feature that was associated with the highest sale premiums was an outdoor TV. Homes that mention an outdoor TV sell for 3.1% more than similar homes that don't have one." (31:28)
8. Future Outlook and Expectations
Optimism for Market Growth Post-Election
Leslie Singer expresses hope for a robust real estate market in 2025, anticipating a decline in interest rates and increased buyer activity following the election year.
"I really hope to see a very strong market. Really, those that have been on the sidelines, watching, waiting for the uncertainty to settle, I think a really strong 2025." (34:26)
Advocacy for Supportive Mortgage Programs
Rochelle Atlas Mays calls for more mortgage programs and incentives to aid first-time buyers, suggesting collaboration with banks to create affordable options.
"I would say something similar. I think you'll see interest rates hopefully will be dropping as promised or as said." (35:25)
Vision for a Balanced and Accessible Housing Market
Amanda Pendleton envisions a healthier housing market characterized by balanced power dynamics between buyers and sellers. She advocates for policies that ensure homeownership is accessible to all, emphasizing the importance of a steady and sustainable market recovery.
"Home should be available to everybody. It should be a right and not a privilege." (36:28)
Conclusion
The episode concludes with a unified hope among the experts for a more stabilized and accessible real estate market. They underscore the necessity of increasing housing supply, adapting to evolving buyer preferences, and implementing supportive financial programs to address affordability challenges. As the market navigates through uncertainties, the insights provided by Leslie Singer, Rochelle Atlas Mays, and Amanda Pendleton offer a comprehensive outlook on what resides ahead for the real estate sector.
Timestamps:
- 03:06: Leslie Singer on NY's luxury market strength
- 04:43: Rochelle Mays on move-in ready demand in LA
- 05:59: Amanda Pendleton on mortgage rate impacts
- 07:55: Michael's neighbor comment on rates
- 08:18: Leslie Singer's "buy, marry the apartment" advice
- 10:51: Rochelle on LA's mansion tax
- 09:51: Leslie on foreign buyers
- 12:20: Leslie on NY's mansion tax impact
- 16:43-17:28: Advertisement (Skipped)
- 18:52: Amanda on national housing deficit
- 21:55: Leslie on NYC rental market
- 22:27: Rochelle on LA rental boom
- 22:59: Amanda on national rental trends
- 26:17: Leslie on music rooms as amenities
- 27:11: Rochelle on LA's luxury amenities
- 31:28: Amanda on outdoor features boosting home sales
- 34:26: Leslie’s hopes for 2025 market
- 35:25: Rochelle on mortgage programs
- 36:28: Amanda on balanced housing market