Luxury Home Values Decline in First Quarter of 2011

First Republic Bank, May 23, 2011

Prices Fall In Los Angeles, San Diego and San Francisco

Luxury home values dropped in Los Angeles, San Diego and San Francisco in the first quarter of 2011 compared to the fourth quarter of 2010, according to the First Republic Prestige Home Index™ by First Republic Bank, a leading provider of private banking, private business banking and wealth management services.

In the quarter ended March 31, 2011, the Index indicated the following:

  • Los Angeles area values dipped 0.5% from the fourth quarter of 2010 and slid 0.9% from a year ago. The average luxury home in Los Angeles is now $1.96 million.
  • San Diego area values fell 4.6% from the fourth quarter and decreased 5.1% year-over-year. The average luxury home in San Diego is now $1.63 million.
  • San Francisco Bay Area values lost 4.3% from the fourth quarter and were 1.9% lower compared to a year ago. The average luxury home in San Francisco is now $2.49 million.

“Luxury home prices fell in the first quarter of 2011 in all three of California’s major metropolitan centers,” said Katherine August-deWilde, President and Chief Operating Officer of First Republic Bank. “The market gains of the fourth quarter of 2010 reversed in the first quarter of this year. Prices fell as sales activity declined. The combination of low interest rates and lower prices have made luxury homes in California's major metropolitan regions increasingly affordable.”

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.

After rising in the final two quarters of 2010, luxury home prices in Los Angeles went down in the first quarter of 2011.

However, agents said the ultra high end and beach communities were largely retaining their value. “In Los Angeles, there have been 20 closed home sales over $10 million year-to-date,” said Lisa Platt of Coldwell Banker in Beverly Hills. “That was the same number as last year at this time. There are a lot of all-cash buyers. People are also trying to capitalize on lower interest rates. Shrewd investors see this is as a good time to get into the market.”

Agents agreed that cash deals were on the rise. “Most of the largest transactions are all cash or almost all cash,” said Bennett Carr of Sotheby’s International Realty in Beverly Hills. “They are buying more house and a better house at a lower price,” Carr said. “This is really a two-part market. The very best properties are holding their value very well. To the extent a property isn’t the best product, prices are softening. It is also interesting to note that we are seeing more international investors than ever before.”

In ocean communities, quality neighborhoods were experiencing active interest among buyers. “Demand for property has outstripped the inventory, even though inventory is higher,” said John Capellaro of Coldwell Banker in Manhattan Beach. “When the right kind of property comes onto the market, there are often multiple offers.”

After rising in the fourth quarter of 2010, values in the San Diego area fell in the first quarter to their lowest point since the first quarter of 2004. The average price of a luxury home was then $1.63 million.

Agents in San Diego said a lack of demand was pushing prices lower. “We still have a lot of inventory in the upper prices points,” said Michael Taylor of Prudential California Realty in Rancho Santa Fe. “Whenever that happens, you have downward pressure. The good news is that we’re a whole lot closer to inventory equilibrium. Under $3 million, we’re close to equilibrium. Above $4 million, we’re still not there yet.”

Maxine Gellens of Prudential California Realty in La Jolla agreed. “The market over $3 million is very slow. There was only one sale in La Jolla over the past eight months. People seem to be scaling down, no matter who they are.”

San Francisco Bay Area values in the first quarter fell to their lowest point since the first quarter of 2004, when the average price of a luxury home was $2.39 million.

“We weren’t surprised that the first quarter was sleepy," said Stephen Gomez of Gomez & Patton Real Estate in San Francisco. “First quarter sales reflected the price discounting that took place in the second half of 2010. Normally, it's a sellers' market in San Francisco, but we had a buyers' market in final two quarters of last year. Now we're starting to see the window to the buyer's market close.”

On the tech-heavy San Francisco Peninsula, where the economy is stronger, interest was picking up. “I see tons of buyers with money, but inventory is the issue more than anything else,” said Geoffrey Nelson of McGuire Real Estate in Burlingame. “We recently had three sales over $5 million. It is probably a better market than sellers think.”

In the East Bay, buyers were also hesitant to make offers. “There are actually a few buyers out there, but they are unwilling to commit,” said Sharon Dare of J. Rockcliff Realtors in Danville. “That drags down prices. If someone really does want to sell a home, the price is typically lowered.”

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

First Republic Bank (NYSE:FRC) and its subsidiaries provide private banking, private business banking and private wealth management. Founded in 1985, First Republic specializes in exceptional, relationship-based service offered through preferred banking or wealth management offices primarily in San Francisco, Palo Alto, Los Angeles, Santa Barbara, Newport Beach, San Diego, Portland, Boston, Greenwich and New York City. First Republic offers a complete line of banking products for individuals and businesses, including deposit services, as well as residential, commercial and personal loans. First Republic is included in the S&P Total Market Index and Wilshire 5000 Total Market IndexSM. More information is available on the Bank’s website at

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