Los Angeles, San Diego Luxury-Home Prices Fall Most in Decade

User Forum Topic
Submitted by hipmatt on August 26, 2008 - 8:57am

By Dan Levy

http://www.bloomberg.com/apps/news?pid=2...
Aug. 25 (Bloomberg) -- Luxury-home prices in the Los Angeles and San Diego areas fell the most in more than 10 years in the second quarter as stricter lending terms reduced the number of buyers, while the San Francisco Bay area was little changed.

The average price of a luxury home in Los Angeles dropped 3.8 percent in the quarter from a year earlier, the most since 1996, according to a survey by First Republic Bank, a unit of Merrill Lynch & Co. Luxury homes were defined as those costing more than $1 million with up to 6,000 square feet (557 square meters), six bedrooms and six bathrooms. Prices fell 7.8 percent in San Diego, the most since 1997, while San Francisco prices rose 0.2 percent.

``Values of luxury homes throughout California remain under pressure due to increased caution among buyers,'' Katherine August-deWilde, president and chief operating officer of San Francisco-based First Republic Bank, said in a statement today.

Lenders are requiring higher credit scores and larger down- payments after more than $500 billion in subprime-related writedowns and credit losses at financial firms worldwide since the beginning of 2007. Purchases made with jumbo loans, those over $417,000, fell by half in July in the San Francisco Bay Area, MDA Dataquick reported last week. Jumbo loans accounted for 16 percent of July home purchases in Southern California compared with almost 40 percent before banks raised standards, MDA Dataquick said.

Average Prices

The average price of a Los Angeles-area luxury home is now $2.37 million, a 1 percent increase from the first quarter, First Republic said. The average San Diego price is $2.02 million, down 2 percent, and the average San Francisco price is $3.01 million, up 0.1 percent, according to First Republic.

San Diego values have fallen for four straight quarters on a quarterly and year-over-year basis, First Republic said.

Prices may drop further in San Diego because of growing inventory and reduced availability of jumbo mortgages, broker Amy Green of Prudential California Realty, said in the statement.

In Los Angeles, properties ``with any perceived issues'' aren't attracting buyers, said Mary Beth Woods of Coldwell Banker.

``For a home to sell at the asking price, it needs to be a premium property in a premium location and in premium condition,'' Woods said.

San Francisco's luxury-home inventory is limited, keeping prices from falling, said Chris O'Connor of McGuire Real Estate.

``However, there is more balance in the negotiations between buyers and sellers on both price and terms,'' O'Connor said.

First Republic tracks prices with Fiserv CSW Inc., a provider of automated property valuation services for financial institutions. The companies measure a basket of homes costing more than $1 million in places such as Beverly Hills, Brentwood and La Jolla in Southern California and Belvedere, Hillsborough, Healdsburg and Woodside in Northern California.

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"… as stricter lending terms
Submitted by cooprider on August 27, 2008 - 12:24pm.

"… as stricter lending terms reduced the number of buyers,"
"…reduced availability of jumbo mortgages…"

This tells me people still refuse to accept how far prices have to drop, or that prices were actually inflated. This sounds like NAR-speak refusing to acknowledge we are in the middle of a severe correction as if prices are being artificially depressed. They just increased the Jumbo conforming limit!

Granted the high end is more resilient, (although far less as the job market continues to deteriorate) and it also didn’t climb as high, but that doesn’t mean prices aren’t inflated and won't continue to fall.

Just a little reminder of the
Submitted by gdcox on August 28, 2008 - 1:11am.

Just a little reminder of the growth in inequality which surely must be reflected in house price trends between areas.
------------------

US household incomes fail to grow
By Steve Schifferes
Economics reporter, BBC News

US households have failed to benefit from the strong economic growth in the last six years of expansion.

Despite an economy that expanded by 18% since 2000, real income for the median family fell by 1.1% from 2000 to 2006.

Job creation was much slower as well, with jobs growing by just 0.6% per year, one-third of the previous rate.

But people at the top of the income distribution, the top 1%, tripled their income between 1989 and 2006, according to the Economic Policy Institute.

"While most Americans were struggling, the good times were rolling for the top 10%," said EPI president Lawrence Michel.

With the US economy now slowing, household income is likely to fall further behind, the group predicts, with African-American and Hispanic households especially hard-hit.

Here is an excellent post
Submitted by LA_Renter on August 28, 2008 - 9:04am.

Here is an excellent post from Mr Mortgage about the Jumbo-Prime Universe

"Jumbo-Prime Under Attack by the Raters - Big Banks Beware
Posted on August 28th, 2008 in Uncategorized

More news for you on the Jumbo-Prime and Alt-A front. The recent flurry of action by the raters is almost too much to keep up with. In the past month, all three primary ratings agencies have torn apart the Jumbo Prime and Alt-A RMBS market. Now Moody’s is going one step further by stepping up scrutiny, which means more downgrades shortly, on ALL Jumbo Prime deals from 2006-2007."

http://mrmortgage.ml-implode.com/2008/08...

Also, I posted about this on the Pain in La Jolla thread from Manhattan Beach Confidential, it is a recent Karate chop sale in exclusive Manhattan Beach

http://mbcon.blogspot.com/2008/08/homers...

Home
"decent-sized 3br/3ba, 2300 sq. ft. home with substantial ocean views. Contemporary, clean, and nice, nestled in a very quiet part of the South End..."

List Price $2.3 M

Sold $1.7 M

Last sale 2002 $1.37 M

Keep in mind the increase in the median price in MB (nominal) was 161% from 2000-2008, and beach-adjacent properties usually outperform the median.

This was not a tear down and according to the comments the seller was a successful RE Investor (commercial) and moved into a $6 M home (point being this was an educated seller). So this is what it looks like when sellers in the high end markets don't cancel the listing and make the sale at what the market will bear. This one got people's attention around here. The data is suggesting with each passing day that the high end is cracking.

I agree with LA_Renter.For
Submitted by peterb on August 28, 2008 - 12:20pm.

I agree with LA_Renter.For all those people on this site that have been wondering about why the better areas have not experienced much trouble yet, check out Mr Mortgage's web site. The Pain Train will be pulling into their station soon. The big money loans made in the last 3 years are starting to crack in a serious way now. So check you local listings for any properties that were purchased in this time frame. Could be some opportuities there.

And in today's new: RE investors that want to purchase homes and then rent them out are running into a wall for financing. Turns out banks now have no stomach for making loans to people who have two or more outstanding mortgages. So, you better have cash. Oh, this puts more downward pressure on prices, incidentally.

Tanta at calculated risk said
Submitted by cooprider on August 28, 2008 - 7:46pm.

Tanta at calculated risk said it well:

"Alt-A is sort of a weird mirror-image of subprime lending. If subprime was traditionally about borrowers with good capacity and collateral but bad credit history, Alt-A was about borrowers with a good credit history but pretty iffy capacity and collateral. That is to say, while subprime makes some amount of sense, Alt-A never made any sense. It is a child of the bubble."

As a result fraud was rampant and it turns out, Prime, really isn't.

http://www.housingwire.com/2008/08/28/pr...