An ever growing supply of high-end listings is leading to long awaited price cuts, which will be the theme of the high-end real estate market in 2009.
According to the Concord Group which tracks the luxury home market, resales of $2 million-plus homes declined 28% in the fourth quarter of 2008, compared with the same period in 2007. Meanwhile, sales in all price ranges for the fourth quarter were up 34% — fueled by foreclosures. A look at the Multiple Listing Service provides strong evidence the recession is hitting the luxury market and it is finally starting to sink in with sellers.
Santa Monica inventory finished the year up 24% (year-end 2008 over year-end 2007) for less than $3M asking price, and up 155% for over $3M. Similarly Pacific Palisades inventory is up 147% for less than $2M and up 54% for over $2M.
Through January, new listings and previously expired or withdrawn listings have flooded the market and most with a cut in price. Pacific Palisades provides three strong examples.
1141 Maroney Lane, Pacific Palisades “PP”- List Price “LP”: $7,945,000; 6-16-08- $9,450,000; 5-15-08- $10,500,000; 9-24-07- $12,500,000 total percentage difference: 46%
431 Alma Real Drive (New Construction), PP- $9,275,000; 11/3/08- $10,695,000; 8/15/08- $11,900,000; 2/19/08- $12,900,000 total percentage difference: 30% **within a week of the original listing they had an accepted offer that fell out of escrow.
958 Chautauqua (internally remodeled after 2005 purchase), PP –LP: $2,795,000; 1/31/08- $3,295,000 (Leased for $13,000 thru 08); 4/23/07- $3,995,000 total percentage difference: 32% Note: 2/15/05- sold for $2,508,695
Over the past week, 15 net new listings each for Santa Monica and Pacific Palisades plus relistings of the previously expired and withdrawn. In Santa Monica, evidence suggests low-end north of Montana sales are tipping below $2 million and mainstream low-end Sunset Park is tipping below $1 million. Currently, the inventory of desirable homes is still weak but in my opinion, it will be increasing significantly throughout the next two quarters.
Unfortunately, the demand side, even for upper-end houses, is also suffering and growing weaker.
Income in Los Angeles’ recently top-earning industries, finance and entertainment, is falling. Check out the LA Times lead article last Friday “A Bleak Picture for Big Studios”. Not to mention hedge funds and mortgage lenders’ bonuses being mostly non-existant, especially in 2009.
Huge losses in the stock market in 2008 and/or equity losses in previous houses sold to move up restrict cash available for purchases.
Jumbo interest rates have not fallen like conforming rates have, and qualifying standards are up, including higher down payments just as buyers have fewer assets.
However, some sunshine does exist. I expect jumbo rates to begin to decline around the second quarter and we are also seeing private banks provide very competitive rates for highly qualified jumbo buyers.
The high-end glut will happen and with that bring opportunities. In the long run, The Westside/South Bay is always a great investment if you can afford it. Especially, when you can take advantage of a declining market while securing a very good interest rate.
Sources: MLS, LA Times, Westside Bubble