Los Angeles Housing Market Shifts as Inventory, Rates and Insurance Costs Rise

Written by:

Steve Marcinuk

Date:

26 Mar 2026

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The Los Angeles real estate market is undergoing a notable adjustment as buyers and sellers adapt to higher interest rates, rising insurance costs, and an increase in available homes. After years of rapid price growth and intense competition, the balance of power is shifting, creating new challenges and opportunities for everyone involved.

This evolution is evident to agents such as Trey Alligood, the leader of The Alligood Group at Douglas Elliman Real Estate. Alligood’s background — spanning Broadway performances, a 16-year career in fashion, and a pivot to real estate just days before the 2020 pandemic lockdown — gives him a distinct perspective on client needs and market cycles.

Interest Rates: From Denial to Acceptance

A central factor in today’s housing market is the widespread realization that pandemic-era mortgage rates are gone for good. For years, buyers hesitated, hoping for a return to 3% rates. But as Alligood explains, this expectation has faded. “People are coming to terms with the fact that interest rates are not coming back down to 3%,” he says.

Many homeowners have stayed put, reluctant to trade their low-rate mortgages for loans at 6% or 7%. Alligood notes that life events eventually force action: growing families, caregiving needs, or changes in employment often outweigh the appeal of holding on to a lower rate. “At some point you have to do it,” he explains. For these buyers, the higher monthly payment is now seen as a necessary cost rather than a negotiable obstacle.

Turnkey Homes Command a Premium

With more choices available, buyers are less willing to compromise. Move-in-ready homes—updated, clean, and requiring no immediate work—are selling quickly, often within one to two weeks. “The properties that are really moving quickly are turnkey, ready to move in,” Alligood says.

Even minor projects can deter buyers. “If the buyer even has to paint, sometimes it is a hurdle,” he explains. This marks a sharp contrast to the 2021-2022 rush, when buyers overlooked flaws and competed for any available property. Now, the premium for turnkey homes has widened, and outdated or project-heavy listings linger or require price cuts.

The Palisades Fire and Shifting Neighborhoods

The aftermath of the Palisades fire highlighted how local events can reshape demand for certain neighborhoods. Rather than dispersing widely, many displaced residents sought homes in nearby Santa Monica and Brentwood. “Those people that live in Palisades, they want to be by the beach, they’re West Side people,” Alligood explains.

The fire also changed attitudes toward hillside living. Many former Palisades residents now prefer homes on flatter terrain, avoiding the psychological stress of fire-prone hillsides. “It’s very triggering for them,” Alligood says, noting that safety and peace of mind now rank higher than elevation or views for these buyers.

Insurance Costs Alter the Equation

Rising insurance premiums have become a serious obstacle, especially in high-risk areas. Alligood reports a recent quote of $110,000 per year to insure a Bel Air property—triple the cost from five years ago, when premiums for similar homes ranged from $30,000 to $35,000.

These costs hit both affordability and buyer sentiment. “That just adds another cost to the buyer and another reason for the buyer to sit and wait a little bit longer,” he says. The expectation that insurance rates might eventually decline has kept some buyers on the sidelines, but there is little evidence that premiums will return to previous levels.

Luxury Market Slowdown and the Mansion Tax

The introduction of Los Angeles’ mansion tax in April 2023, which imposes an extra levy on properties over $5 million, has slowed luxury sales. “We saw a huge slowdown on luxury properties when they put that into effect,” Alligood says. Although activity has recovered somewhat, it remains well below pre-tax levels.

The additional cost has made buyers more cautious and sellers more reluctant to list high-end homes. Properties just above the $5 million threshold are particularly affected, as buyers factor the tax into their negotiations and overall budgets.

Deal-Making: New Rules and Rising Tensions

Market rebalancing has led to tougher negotiations. Buyers now submit extensive repair requests, expecting sellers to address every issue, from minor cosmetic flaws to major system upgrades. “Buyers are coming in so hard and asking for everything under the sun,” Alligood says.

Sellers, used to fielding multiple offers and minimal contingencies, are struggling to adjust. Many are unwilling to concede on repairs, especially if they are not under pressure to sell. “There are a lot of sellers that don’t have to sell, so they’re like, no, we’ll just wait for the next one,” he explains. As a result, more deals are collapsing due to repair disputes than to financing or appraisal issues—a notable reversal from previous years.

International and Domestic Migration Trends

Despite higher costs and market uncertainty, international buyers—especially from Asia—remain active in Los Angeles. “We have quite a big Asian clientele coming to the market,” Alligood says, noting that these buyers represent the most significant source of new international demand for his team.

Meanwhile, high-net-worth Americans continue relocating to states with more favorable tax structures. “There’s a lot of high-net-worth people moving to Florida, mainly due to tax purposes,” Alligood observes. This trend is drawing both buyers and sellers out of California’s luxury segment, affecting inventory and price dynamics at the top end.

Investor Strategies: Opportunity Amid Uncertainty

Alligood believes the current market offers strong opportunities for investors who are prepared to act. “Right now is an incredible time to buy because there is a lot of inventory and deals are being made,” he says. With many would-be buyers on the sidelines, investors can negotiate favorable terms and acquire properties with less competition.

He recommends focusing on single-family homes, which historically appreciate faster than other property types. “If you can afford to go the single-family route and you find a great deal, that would be my advice,” Alligood says. Investors who wait for signs of market recovery may find themselves competing with a flood of returning buyers.

2026 Outlook Turns Cautiously Optimistic

Alligood is optimistic about the next two years, predicting that 2026 could be the strongest year for Los Angeles real estate since before the pandemic. Several factors support this outlook. Buyers are accepting current interest rates, post-fire migration has stabilized, and pent-up demand is beginning to surface.

“We’ve seen a nice uptick over the last couple of weeks as far as buyers jumping back in the market ready to go,” he says. Challenges remain, including high insurance costs and the continuing impact of the mansion tax. The underlying fundamentals suggest activity will increase as buyers and sellers adjust to the current environment.

What Buyers and Sellers Face Next

The coming year will test whether today’s cautious optimism translates into sustained sales and price stability. Buyers and sellers who adapt to higher rates, rising insurance costs, and tougher negotiations will be best positioned to succeed. The days of easy deals and rapid price growth are over, but Los Angeles remains a market where preparation, realistic expectations, and a willingness to adjust can still deliver results.

About the Expert: Trey Alligood is the leader of The Alligood Group at Douglas Elliman Real Estate, specializing in residential real estate across the Los Angeles market. He brings a distinctive perspective to client representation, drawing on a background that includes Broadway performances and a 16-year career in fashion before transitioning to real estate in 2020.

This article is based on information provided by the expert source cited above. It is intended for general informational purposes only and does not constitute legal, financial, or real estate advice. Readers should conduct their own research and consult qualified professionals before making any real estate or financial decisions.