Luxury Home Markets in California Appeared To Be Stabilizing in Fourth Quarter 2009

First Republic Bank, February 23, 2010

Values Rose Slightly in San Diego, Fell Modestly in Los Angeles and San Francisco

Luxury home values in Los Angeles, San Diego and San Francisco began firming at the end of 2009, according to the First Republic Prestige Home Index™ by First Republic Bank, a leading provider of private banking and wealth management services.

In the quarter ended Dec. 31, 2009, the Index indicated the following:

  • Los Angeles area values fell 12.9% over the past year and dropped 0.9% from the third quarter of 2009. The average luxury home in Los Angeles is now $2.01 million.
  • San Diego area values dropped 12.2% year-over-year and rose 0.8% from the third quarter of 2009. The average luxury home in San Diego is now $1.70 million.
  • San Francisco Bay Area values decreased 14.5% over the past year and declined 0.4% from the third quarter of 2009. The average luxury home in San Francisco is now $2.51 million.

“On a year-over-year basis, prices continued to fall sharply, but market conditions improved slightly from the third quarter of 2009 to the fourth quarter of 2009,” said Katherine August-deWilde, President and Chief Operating Officer of First Republic Bank. “The rate of decline on a quarterly basis slowed in Los Angeles and San Francisco, while San Diego values rose modestly for the first time in more than two years. In many urban, coastal communities, prices fell either sharply or stabilized. There is increased activity in many markets.”

First Republic Bank produces the Prestige Home Index each quarter with Fiserv CSW Inc., a leading provider of automated property valuation services and home price metrics to U.S. financial institutions. Historical results of the Index, which has tracked luxury homes since 1985 are accessible at First Republic Bank is an active lender in the luxury home market for both primary residences and vacation homes.

Values in the Los Angeles area have declined for the past eight quarters on a year-over-year basis. Prices are at approximately the same level as they were in the first quarter of 2005.

In Beverly Hills, real estate professionals said market activity increased in the fourth quarter. “We’ve had more showings, more escrows and some really big sales that were non-existent in earlier quarters,” said Billy Rose of Prudential California Realty in Beverly Hills. “I think we have seen most of the price erosion that we’re going to see.”

Herb Leary of Leary Estates in Pacific Palisades agreed. “In the Los Angeles area, the market below $1 million is starting to pick up. That market is the first to turn before the higher end improves. While the number of sales in the luxury market is just starting to increase, the price point is still much lower than last year.”

Mary Randall of Prudential California Realty in Pacific Palisades said her clients are uncertain about whether the market is headed down. “I believe the market is stabilizing a little more, but some buyers think prices are still creeping down. We also have a gap of who can purchase because some buyers are having trouble getting a loan.”

Values in San Diego posted a quarterly increase after falling for nine consecutive quarters, although prices have continued to decline on a year-over-year basis. San Diego values are at approximately the same level as they were in the second quarter of 2004.

Agents said the San Diego market was gathering some momentum. “Prices in the fourth quarter were essentially flat, but the activity has increased unbelievably,” said Jason Barry of Jason Barry Estates in Rancho Santa Fe. “The market under $4 million is very strong, and the market over $4 million is starting to pick up.”

Lucy Kelts of Prudential California Realty in Rancho Santa Fe said values are flattening, but inventory is very low in the upper-end of the price range. “It is still a buyers’ market, but unrealistic buyers aren’t getting anywhere. In January, there was a whole host of really healthy closings.”

Values in the San Francisco Bay Area have decreased for six consecutive quarters on a year-over-year basis. Prices are at about the same level as they were in the third quarter of 2004.

In San Francisco, real estate professionals said buyers were feeling better about the housing market. “There’s an appetite for purchasing that began in November because buyers have renewed confidence,” said Gregg Lynn of Sotheby's International Realty in San Francisco. “The market between $2 million and $4 million is strong. If the property is priced correctly, we’re getting multiple offers. We can’t keep that inventory on the market.”

South of San Francisco on the Peninsula, the market is also improving. “There is more activity, and we’ve found equilibrium again,” said Ken DeLeon of Keller Williams in Palo Alto. “In the $3 million market, you are starting to see occasional multiple offers, although the sales are below the list prices. I expect to see moderate price appreciation in 2010."

North of San Francisco in the Napa Valley, the market has been flat. “There are very few sales at the high end, but prices are about the same. In the Wine Country, you typically have buyers of second and third homes, so a lot of them are just waiting,” said Barry Berkowitz of St. Helena Real Estate. “They are afraid to buy because values might drop. However, in the last few weeks, we have seen more people looking.”

About The First Republic Prestige Home Index

The First Republic Prestige Home Index™ is the first statistical model of its kind customized to measure changes in homes valued at more than $1 million in key California urban markets. Some common features of luxury homes in the Index: 3,000 to 6,000 square feet, three to six bedrooms, and three to six bathrooms. San Francisco Bay Area properties include a cross-section of luxury homes in Alamo, Atherton, Belvedere, Danville, Healdsburg, Hillsborough, Lafayette, Los Altos, Los Gatos, Mill Valley, Moraga, Orinda, Palo Alto, Piedmont, Portola Valley, Ross, St. Helena, San Francisco, Saratoga, Sonoma, Tiburon and Woodside. Properties in Los Angeles represent a cross-section of luxury homes in Arcadia, Beverly Hills, Calabasas, La Cañada Flintridge, Encino, Los Angeles, Malibu, Marina del Rey, North Hollywood, Pacific Palisades, Pasadena, Playa del Rey, Santa Monica, Studio City and the West Los Angeles enclaves of Bel Air, Brentwood and Westwood. San Diego properties represent a cross-section of luxury homes in Carlsbad, Coronado, Del Mar, Encinitas, La Jolla, La Mesa, Poway, Rancho Santa Fe, San Diego and Solana Beach. In producing the Index, Fiserv CSW Inc. draws upon its economic database and years of experience in tracking single-family home values; collects and cross-checks data from multiple sources; achieves a weighted balance of validation elements such as repeat sales, comparable sales, and physical home characteristics; and combines this with First Republic's extensive local market knowledge.

About First Republic Bank

Founded in 1985, First Republic Bank and its affiliated companies provide private banking, private business banking and private wealth management. First Republic specializes in delivering exceptional, relationship-based service through preferred banking or wealth management offices in the following areas: San Francisco, Palo Alto, Los Angeles, Santa Barbara, Newport Beach, San Diego, Las Vegas, Portland, Boston, Greenwich and New York City. More information is available on the Bank’s website at First Republic is a division of Bank of America, N.A.