The lack of housing inventory – a major pain point for real estate agents and loan officers – is an issue that Mark Cohen, principal owner of Cohen Financial Group, also sees in the upper end of the Southern California market.
The $1 million to $4 million homes market is very competitive, and qualified borrowers are having a hard time finding homes. However, there’s an oversupply of Inventory for homes priced $5 million plus, Cohen said in an interview with HousingWire.
“It’s a two-story housing market in Southern California,” Cohen said.
Cohen funded $751.4 million in loan volume in 2022, which led to him being the second-ranked loan originator of the year, Scotsman Guide’s rankings showed. Cohen trailed behind Guaranteed Rate‘s Shant Banosian, who originated $925 million during the same period. He was the number one mortgage broker and the loan officer with the most non-QM origination volume, according to Scotsman Guide.
Among mortgage brokers, Cohen ranked first.
While there are fewer move-up buyers now compared to the pandemic years, Cohen noted the uniqueness of the Southern California housing market, in that people tend to move more frequently compared to other states as they accumulate wealth.
“Here in LA, if you make money, you have your starter home, and if you make more money in the next few years, three, four or five years, you go to a bigger house. It’s not like in the Midwest or in other areas where you are in the house for the next 30 years. (…) There’s a lot of upward movement in LA. That’s why the market is so brisk,” Cohen said.
Read on to learn more about the two sides of the Southern California housing market and how Cohen stays competitive.
This interview has been condensed and lightly edited for clarity.
Connie Kim: California – as well as the rest of the country – is experiencing issues from a serious lack of inventory. I’m curious what the situation has been for the high-end markets you target.
Mark Cohen: I think inventories are improving a little bit just from what I’ve seen the last four, five, six days. But there are many clients, who are well qualified, trying to buy houses. For the most part, it’s the $3 million and under category. Anywhere from about $1 million to $4 million, the market is very, very competitive.
It’s a two-sided market here. Once you get over the $5 million threshold, there’s this oversupply, and the psychology of property tax is having a real negative effect on the market. I think there were only two or three sales last month in LA County over $5 million.
However, you’ll see isolated sales too. Beyonce and Jay Z bought a $200 million house in Malibu recently, so you’re going to see things like that. But as a general rule, the $5 million to $10 million market is off.
Kim: You also do a lot of non-QM loans. Who are your main borrowers?
Cohen: Executives, it’s probably a mix of 50/50. There’s a whole bevy of people here in Los Angeles that are self employed, who have good jobs, good businesses, but they don’t show everything they make on their tax returns. That’s where non-QM comes into play. The rates for those loans are pretty aggressively priced in comparison to the bank rates like JP Morgan Chase and Bank of America.
The rates – depending on the loan-to-value and credit score – are only about half to three-quarter points higher, which is really tangible. So it opens up a whole new avenue for people who fall within that category.
Half the clients go to the traditional banks where we can show tax returns.
Kim: If you have a lot of so-called wealthy borrowers, I would assume a lot would be interested in investment properties. How much of your sales is investment properties versus first-time homebuyers?
Cohen: I also do heavy work in the entertainment business in Southern California. I have several dozen business managers, money managers that I do work with. I would say maybe 10 to 15% of the deals are investment property deals.
A lot of first time buyers [actually], which is good because they’re not used to having 3% mortgages. They’re not going to be sensitive to the rate differentials.
Here in LA, if you make money, you have your starter home, and if you make more money in the next few years — three, four or five years — you go to a bigger house.
It’s not like in the Midwest or in other areas where you are in the house for the next 30 years. It doesn’t really work that way. In most situations, especially with young couples, they get married, have a kid and they need more rooms, assuming they’re doing well. So there’s a lot of upward movement in LA. That’s why the market is so brisk.
Kim: That’s really interesting. It’s quite the opposite from other areas, where people in different states are not moving, thus creating an inventory lock-down.
Cohen: It’s held back to a degree. I’m not saying it’s overly buoyant, but a lot of people really need more rooms when you have a kid. A lot of people I work with make money and there’s a lot of money in upward mobility.
Kim: So are they less impacted by the higher rates compared to about three years ago?
Cohen: Everybody is impacted. But we get the best deliverable rates – rates are in the 5s. So yeah, they’re less impacted. They’d rather pay more with the idea that at some point in time, which will occur in the next six to 12 months, rates will be lower. We’ll have the window to refinance the house.
Kim: What does your product mix look like?
Cohen: With the yield curve where it is, if you’re going to do a bank loan, it’s pretty much all 30-year fixed rate loans or 10-year adjustable-rate mortgages (ARMs). I’m doing a lot of HELOCs. Refinances are maybe 10% of business here from where it used to be at around 40, 50%.
I do have one brokerage house that if you have a million dollars net worth with them, rates are in the high 4s or low 5s. Lower loan-to-value, so I do have some good rates, but that’s going to be for more affluent people.
Kim: What helped you become the top producing broker in 2022? Does Cohen Financial Group have proprietary tech or are sales mostly coming from referrals?
Cohen: I’ve been in the business for 36 years, and it helps obviously knowing people and constantly following through. It’s the same thing in any business: doing the right things.
I’ve got very strong resources in banks and private banks, and on the non-QMs. I’m very picky with who I work with in terms of banks, because the worst thing to do is to get in situations where you don’t have control over the deals.
Cohen: To maintain this to the best I can and hopefully achieve the same numbers. Obviously the more the better, but I’ve got no control. Just to do the right thing, get good execution and keep my relationships going with people, which I always work on.