Luxury Home Values Stable in Second Quarter of 2011

First Republic Bank, August 22, 2011

Prices Rise Modestly in Los Angeles and San Francisco, Fall in San Diego

Luxury home values rose in Los Angeles and San Francisco in the second quarter of 2011 compared to the first quarter, but declined in San Diego, according to the First Republic Prestige Home Index by First Republic Bank, a leading private bank and wealth management company.

In the quarter ended June 30, 2011, the Index indicated the following:

  • Los Angeles area values climbed 1.7% from the first quarter of 2011 and increased 1.8% from the second quarter a year ago. The average luxury home in Los Angeles is now $2.0 million.
  • San Diego area values decreased 1.2% from the first quarter and fell 6.0% year-over-year. The average luxury home in San Diego is now $1.6 million.
  • San Francisco Bay Area values rose 0.6% from the first quarter and were 3.1% lower compared to a year ago. The average luxury home in San Francisco is now $2.5 million.

“Luxury home prices were largely stable in the second quarter of 2011,” said Katherine August-deWilde, President and Chief Operating Officer of First Republic Bank. “Certain communities in California, particularly those in and around the Silicon Valley and parts of San Francisco, showed robust activity. Real estate agents are now reporting that economic uncertainty and stock market volatility are impacting some buyers, despite the all-time low mortgage interest rates.”

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.

Los Angeles values rose 1.8% in the second quarter of 2011 from the same period a year ago. The gain was the first on a year-over-year basis in the past 14 quarters.

“The upper end of the market is very strong for well-priced homes,” said David Mossler of Teles Properties in Beverly Hills. “There are four to five buyers for every house. There is very little quality supply. I just sold homes for $7.8 million and $8.6 million to all-cash buyers. If a home is properly priced, demand is very strong. But the home has to be well-priced.”

Charles Pence of Pence Hathorn Silver in Santa Monica said that prices are varying widely by community. “More than ever before, we have highly attractive micro markets with strong activity and price gains, but the surrounding markets can often be flat. This market is driven more by a lack of inventory than anything else. We’ve had some big sales in terms of price. It is hard to predict what someone will pay for something now at the upper end.”

Armen Sarkissian of Prudential California Realty in Pasadena said pricing strategy is key for sellers. “If the price is right, people will buy. There are a lot of buyers for $6 million to $7 million homes, but they are scrutinizing every deal. Because buyers are also concerned about purchasing a depreciating asset, the price has to be below the comparable sales in the past three to six months.”

In San Diego, prices continued a downward trend. On a year-over-year basis, second quarter prices fell 6% compared to the second quarter of 2010.

Mo Loghavi of Prudential California Realty in La Jolla said he expects prices to drop further. “People in the $1.5 million to $5 million want to continue downsizing, but there are no trade-up buyers. We still have another 12 to 14 months of inventory. By the end of 2012, we will see a little more movement, but I haven’t seen the light at the end of the tunnel for the luxury market.”

Farid Khayamian of RE/MAX Associates in La Jolla also said prices may continue to weaken. “In San Diego County, we have roughly 23 months of inventory for homes over $2 million,” he said. “Average supply is about six months. Too much supply and not enough demand for higher end homes will cause prices to soften. Low prices and high inventory are encouraging many investors to make all-cash purchases.”

San Francisco Bay Area values reversed course in the second quarter, rising 0.6% after falling 4.3 percent in the first quarter of 2011. The strong tech sector in Silicon Valley strengthened the market.

Ken DeLeon of Keller Williams Realty in Palo Alto said the market is very strong. “Palo Alto is still really hot,” he said. “Palo Alto is actually over 2006 prices. Interest is as good as I’ve seen it in 10 years. There was a home in Palo Alto that had 32 offers in the past week. Palo Alto is leading the pack in the surrounding communities. I expect to see Atherton, Menlo Park and Los Altos picking up by spring.”

In San Francisco, the market appeared to be slowing. “The second quarter was starting to look better,” said Joel Goodrich of TRI Coldwell Bank in San Francisco. “We had less inventory and more sales, but that was before the recent stock market volatility. In the second quarter, investor confidence was up in San Francisco, with the high tech boom in Silicon Valley and parts of the city. I’m still very bullish on San Francisco and the Bay Area over the next one to five years, assuming a return to normal economic cycles.”

In Marin County, the luxury market was mixed. “In the mid-range, the market is active,” said Pat Montag of McGuire Real Estate in Tiburon. “I was surprised by the three recent listings that went into escrow in Tiburon and Belvedere between $3 million and $7 million. For homes over $15 million, we’re seeing some significant reductions, but many homes were overpriced.”

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 a component of the S&P Total Market Index, the Wilshire 5000 Total Market IndexSM, the Russell 1000®, Russell 3000® and Russell Global indices and six Dow Jones indices.

About First Republic Private Wealth Management

First Republic Private Wealth Management is the investment management, trust and brokerage group of First Republic Bank. First Republic Private Wealth Management offers objective advice and fully customized solutions with the same level of exceptional client service that has been the hallmark of First Republic Bank for more than 25 years. First Republic has the flexibility to provide individuals, families, businesses, endowments, schools and non-profit organizations with appropriate choices that responsibly meet a client’s specific investment objectives. Securities Products and Services are offered by First Republic Securities Company, Member FINRA/SIPC.