Luxury Home Values Hold Steady in Second Quarter

First Republic Bank, August 23, 2010

Prices Up Modestly in San Francisco, Flat in San Diego, and Down Slightly in Los Angeles Compared To First Quarter of Year

Luxury home values in Los Angeles, San Diego and San Francisco were steady in the second quarter of 2010 compared to the first quarter of the year, 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 June 30, 2010, the Index indicated the following:

  • Los Angeles area values decreased 1% from the first quarter of 2010 and declined 5.9% compared to the second quarter of 2009. The average luxury home in Los Angeles is now $1.96 million.
  • San Diego area values dropped 0.3% from the first quarter of 2010 and fell 2.1% year-over-year. The average luxury home in San Diego is now $1.72 million.
  • San Francisco Bay Area values climbed 1.8% from the first quarter and dropped 1.3% over the past year. The average luxury home in San Francisco is now $2.59 million.

“Luxury homes in most high-end communities in California held their value in the second quarter of 2010,” said Katherine August-deWilde, President and Chief Operating Officer of First Republic Bank. “Prices have stabilized since the beginning of the year. Although buyers are somewhat uncertain due to current economic conditions, low mortgage rates are attracting buyer attention.”

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.

The rate of decline decreased in the Los Angeles market compared to the first quarter, as well as the second quarter a year ago.

Kathryn Shafer of John Aaroe Group in Beverly Hills said pricing is even more critical than normal in the current market. “There is pent-up demand among buyers,” Shafer said. “If a home is priced well, it will sell. If it is on the market for 60 days to 100 days, you will see a 10% to 17% reduction in the sale price. I don’t see any large fluctuations in price either negative or positive for the remainder of the year.”

Barry Host of South Bay Brokers in Manhattan Beach agreed that buyers are demanding properties be priced to reflect current value. “Clients want to see that the properties are priced at or very close to the actual value, or the homes will sit,” he said. “There is a lot of emotion in the market right now about what is going to happen for the rest of the year.”

Values in San Diego dipped slightly from the first quarter, while the year-over-year decline in the second quarter was the smallest in more than two years.

In La Jolla, Rancho Santa Fe and Del Mar, agents said the higher end of the market has been soft. “Under $2 million, there is a market for sellers, but proper pricing is critical,” said Greg Noonan of Prudential California Reality in La Jolla. “For homes over $2 million, the market is more challenging. I’m not convinced it has bottomed out. Buyers will have phenomenal opportunities to find properties at great prices over the next 18 months.”

Peggy Chodorow of Prudential California Real Estate in La Jolla agreed. “We have reasonable activity up to the $2 million range, and virtually nothing over $4 million,” she said. “Our high end has been hit very hard. Buyers are not sure whether we are in a recovery or whether we’re going to have a slump for the next three years. On the other hand, the inventory is sensational. You’ll be hard pressed to find a market with this much choice.”

Values in the San Francisco Bay Area increased for the second straight quarter.

“As the volume comes back, we’re expecting to see modest appreciation over the next 24 months,” said Mark McLaughlin, CEO of Pacific Union International & Christie’s Great Estates. “The second quarter was substantially better than what I think the third quarter will be. But it is hard to predict because there has been so much disruption to the market cycle.”

Ana Dierkhising of Hill & Co. Real Estate in San Francisco said affordable loans are stimulating demand. “Historically low interest rates are keeping buyers in the marketplace. Buyers are pickier and are deducting for any challenges to the property. However, they are definitely buying if they feel the property is worth it. There have been multiple offers in Pacific Heights and Presidio Heights – the places with unique views and one-of-a-kind properties.”

In the South Bay, the market was not as active as in San Francisco. “As soon as we entered the summer, the markets definitely started to slow,” said Benjamin Guilardi of Alain Pinel Real Estate in Los Gatos. “People really do want to act and have the ability to act, but they are paralyzed by uncertainty. We’re not missing wealth. We’re missing confidence.”


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.


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