2016 has finally arrived, and with it, a strong American dollar which has various good and bad financial consequences, depending on which side of the business coin you’re involved with. For real estate, there was general concern—especially with regards to overseas investment—that a stronger American dollar might dampen the enthusiasm for American properties, but there are indicators that the dollar’s strength will have very little overall effect on real estate. And that’s especially true for the west coast luxury real estate sector.
Not A Universal Business
Unlike traditional areas of finance such as industry or retail, it’s not so easy to look at real estate as a single entity, where one event or consequence has an effect on the entire industry. Real estate was, is, and always will be, a local business, so just because properties in Detroit aren’t performing well, this has no bearing on real estate in New York or Los Angeles. Real estate also tends to be more inherently stable than volatile assets like stocks, which can drop as much as 50% on the turn of a corner, something that technology stocks like Apple and others are notorious for during unstable trading periods.
Los Angeles in particular is looking like it will be more stable for luxury real estate as “flight capital,” that is, wealthy foreign investors looking for safe places to move their money from their home country, who continue to find value in the residential areas of the west coast. Even New York is looking less attractive in this regard, because the high end of the luxury sector in the city has been experiencing unreasonable surges of activity recently, leading to inflated pricing, and a possible correction of market value as the “luxury bubble” bursts in that city, and properties readjust to more reasonable levels.
Los Angeles however, remains stable. This may also be in part because the majority of the Los Angeles real estate market is focused on residency, rather than large scale commercial or business real estate. Commercial real estate is one of the areas that may experience a softening of activity, as the ebb and flow of this business is more closely tied to the financial health of various regions, and thus CBD or central business district real estate has a real possibility of being less active thanks the performance of the dollar and how it affects other businesses and industries.
For Los Angeles, however, things are looking bright for 2016. Luxury real estate continues to grow, and the market is healthy and active.