HÔM Sotheby’s International Realty in the Orange County Business Journal

HÔM Sotheby's International Realty Chair and CEO Mike Shapiro explores the market dynamics, opportunities, and potential risks and challenges involved with purchases and sales of luxury real estate in coastal Orange County, California.

Global Unrest and Orange County’s Luxury Real Estate

Which Way Will the Tide Turn ?

In this series, HôM Sotheby’s International Realty Chair and CEO Mike Shapiro explores the market dynamics, opportunities, and potential risks and challenges involved with purchases and sales of luxury real estate in coastal Orange County, California.

Fear is fast: In this age of globalization, political, social and economic developments around the world can impact the U.S. economy nearly as much as issues within our borders. And when information is instantaneously sent and received – often, before it’s fully vetted – the impact on stock markets and other investment vehicles, like high-value luxury real estate, can be quick and profound.

What impact, if any, does this have on coastal Orange County’s luxury real estate market?

Rising Insecurity?

Looking back over the last 100 years, the U.S. has experienced several world wars and other international political crises. Polio, mumps, rheumatic fever, and, more recently, AIDS and SARS, haunted our minds and hampered international travel. And from the Great Depression to the Great Recession and everything in between, we’ve experienced numerous economic downturns here and abroad. A handful of weeks ago, the first cases of Ebola were diagnosed in the U.S. In the days that followed, the media was rampant with stories of plummeting international economies, a global pandemic, the so-called Islamic State, quarantines, and chaos upon chaos.

Perception is critical to the psyche of markets — and surprises and uncertainty bring volatility. And when the prevailing sentiment is fear, people often react in ways that are disproportionate to any actual physical or financial danger.

A Ripple of Perspective

If fear spreads quickly, perspective comes more slowly – but it always returns. Respected financial analysts predict slow but steady growth in the U.S. economy over the next several years. From their perspective, the major concern isn’t catastrophic issues abroad but, rather, deflation here. So, as the Federal Reserve talks about increasing liquidity and adjusting monetary policy to balance inflationary and deflationary impacts, investors in coastal properties are wondering if they should buy, sell or hold.

Recently, there’s been a moderate dip in housing prices, including those at the highest end of the market. That’s not a cause for alarm, though: It’s simply because these properties aren’t purchased for shelter so much as they are for building asset portfolios, and when major stock indexes rapidly rise and fall (and rise again), as they have lately, the associated or perceived value of these properties likewise rises and falls.

While this initially may cause something of a downward trend in terms of transactions and pricing, it won’t last. Instead, others who found themselves stepping aside because of the tremendous competition in the real estate markets will step in again. And although concerns have been raised about how global unrest will impact international investment in southern California’s luxury markets, the U.S. remains a stable, strong and desirable place for foreign investment – particularly when compared to the economic and political landscapes found in many buyers’ home countries.

Perception is critical to the psyche of markets…

The Next Wave of Opportunity?

History’s taught valuable lessons that buyers, sellers and real estate professionals should take to heart: Fear moves markets. Hope makes them.

Housing prices are stabilizing and slightly dipping in some markets: That’s not bad news and it certainly should be expected. The huge post-recession gains in the stock markets and subsequent rises in real estate prices can’t be sustained. Instead, a period of relative stability and steady growth, with predictable ebbs and flows, is better for the economy.

Early indications show that mortgage interest rates may hold steady for at least another year; with stable or slightly decreasing prices, a new wave of opportunity arises for lower and midmarket buyers who predominantly buy for shelter. Many first-time buyers – an essential part of the housing equation that had been shut out for many years – will emerge, causing a new wave of opportunity as buyers move up the housing chain.

And Orange County’s luxury markets will move upward, too, as they have countless times in the past.

HÔM sotheby’s international realty’s sales are on target to exceed $2.5 billion for 2014 — they represent buyers and sellers locally, internationally, and are the leading source for luxury real estate in Southern California’s exceptional coastal and desert communities.

If you have any questions or comments, please contact Mike Shapiro at mshapiro@homgroup.com