The cost of homes in Laguna Beach remains at a record median price of $1.8 million, the same mark as a year ago, and significantly above the last peak price point in 2006, real estate experts said.
Home sales overall in Laguna notched up in 2017 to 402 deals, an 8 percent increase over year-ago levels.
Transactions included 21 Montage Way, whose new owner paid $18 million in October for the privilege of proximity to the resort hotel, an unobstructed ocean view and a home bordered by public paths.
In contrast to the year’s most costly transaction, the town’s most reasonable deal was the $530,000 paid by buyers for 407 San Nicholas Court, a condominium complex off El Toro Road, in June, according to Berkshire Hathaway agent Rick Balzer.
In-between, a London couple paid $3.1 million for a 1,730 square foot home in the village. “People are choosing to live small in a beautiful place rather than in the hills,” said Compass agent Michael Johnson.
Conversations with agents reveal a range of influences drawing buyers into town and a similar range of forces leading people to uproot, but some consensus that price appreciation may have hit its limit.
“We are now in year seven of the run-up,” said Surterre Properties agent Frank Hufnagel. “What that tells me is we are near or at the top of the market. I expect ’18 to be a leveling of the sales price and volume. ”
“We know by historical trends, we should go through a downturn somewhere between 2018 and 2022,” Johnson added.
In the meantime, agents believe the town’s high home prices should serve to insulate Laguna from investors speculating on short-term lodging opportunities, even after the city’s regulatory ban was overturned.
“The math is not advantageous,” said Johnson, explaining that market rents fall short of covering costs for new investors. “Only long-term owners can afford to charge lower rents,” he said, because of their lower initial purchase price.
Hufnagel agreed. Moreover, uncertainty over whether the recent decision by the Coastal Commission to reject Laguna’s short-term rental regulations will remain in effect will discourage potential investors, he said.
Death, divorce, job transfers and relocations to retirement homes or proximity to adult children are typical home sale triggers, said Balzer, with decades in the business.
On the flip side, agents say the typical buyer is a successful middle-age person from Los Angeles or elsewhere in Orange County looking for a second home or their dream home. “Living near the ocean and an ocean view home never goes out of style,” Hufnagel said.
That trend shrinks occupancy in the town’s 7,500 single-family homes, with as many as 20 percent second-homes, he estimated.
Agents have mixed views over the impact of the recently passed tax-reform overhaul, which places a cap of $10,000 on property tax deductions and mortgage interest on homes over $750,000.
Hufnagel and Balzer think it will make little difference in decision-making locally. “Even though they might not get a better tax benefit, it’s not a deterrent to the market,” Hufnagel predicted.
Johnson’s forecast differs. He predicted a newfound appreciation in historical homes covered by the Mills Act, which suppresses property taxes in exchange for binding pledges by the owner for upkeep. “It’s a further selling point for those homes,” said Johnson.
Under the new tax rules, a buyer of a median priced $1.8 million Laguna home will lose deductions of about $9,800 on property tax and $30,000 on interest. For the still-working professional, that’s a big figure to walk away from and likely will lead to a softening of home prices in that segment, Johnson said.
Because of greater qualifying restrictions for mortgages by lenders, more buyers are relying on cash deals and foregoing loans, despite low mortgage interest rates. Agents estimate that a third to half of local purchases are closed with cash, typically from downsizing elsewhere or liquidating stock holdings. Foreign buyers are not major influence here, they say.
“We’re an unusual market for the aspirational and affluent; it seems to buck trends,” Johnson said.