Reduced: Prices falling in expensive neighborhoods

The L.A. Times' Peter Hong reports this morning that the luxury real estate market is beginning to crack. Homes like the Beverly Hills mansion at left are being reduced in price -- this one was originally listed at $12 million, then reduced to just under $10 million.

"Median sale prices fell by 13% in Beverly Hills in April, compared with the same month last year. Rancho Palos Verdes dropped 18% over the same period, while Newport Beach's 92660 ZIP Code took a 34% hit, according to DataQuick Information Systems."

More: "Experts say these areas and others are catching up with price declines that struck first in outlying suburbs such as the Antelope Valley and the Inland Empire, where many first-time home buyers purchased their properties with sub-prime loans.  'You can't have one market hugely cheaper than another forever,' said UC Berkeley professor Thomas Davidoff, who specializes in real estate."

I'm curious to hear your thoughts on this story, as this is one of the two or three most-discussed subjects on this blog: whether expensive neighborhoods will eventually see large price declines. I know many of you have been waiting and hoping for significant declines and haven't seen them yet in your neighborhoods of choice. Thoughts? Comments? E-mail story tips to peter.viles@latimes.com.
Photo Credit: Los Angeles Times

Comments

[jag]

Well well well....very interesting. If I recall correctly there are several bloggers out there (e.g., Lefty, Shockg?, etc) who have repeatedly claimed that the Westside is intact. Would love to hear your feedback on this one.

[Jeff S]

Ok, "close your eyes, and click your heels together 3 times and repeat, Land prices are NOT going to fall in MY neighborhood, Land prices are NOT going to fall in MY neighborhood, Land prices are NOT going to fall in MY neighborhood." Ok open your eyes, Uhhhh, sorry but this isn't a fairy tale. It is real life and maybe it is time to stop telling tall tales.

[Steve]

Prices are falling in Manhattan Beach also. Most estimates put the drop at 15%-20% from the peak last year. This past weekend there were over 100 open houses out of about 225 listings.

The Manhattan Beach Confidential blog (mbcon.blogspot.com) can be entertaining to read from time to time. Much of the posting there is divided into two distinct camps. The local realtor/spec builder/mortgage people who seem to be doing everything they can to preserve the recent bubbleistic price increases and the sideline buyers/"angry renters" who believe prices will fall in a big way.

[Roger Moore]

I think that the claim is probably correct, but I don't think that the article presents very good evidence. While they cite several zip codes that have seen large declines, they also point out some that have seen large increases over the same time period. That shows that there aren't enough sales in one month in one zip code to draw any firm conclusions. I think that you get a clearer picture- and one that suggests there's a real decline at the high end- if you average over a longer period and/or across zip codes.

[Pasadena91106]

Looked ar redfin.com last week and there was not one single family home in Pasadena 91106 in the $800K-$1M segment--though lots of condos below that and many expensive homes above thet. Makes me think some owners are trying to wait out the downtown. Over the weekend, saw an empty fixer upper in nearby San Marino for $880K...I think the sky is about to fall...

[Paul Hiller]

It was naive to think that prices in expensive areas were protected. Buyers use the "rule of substitution" when valuing a home. That means they pay attention to what they can buy in comparable as well as neighborhoods one step down. When the differences become too great, they vote with their feet. It took a little longer to see cracks in the high end because the weak hands in the less expensive areas fold first. Expect to see a lot more as there was a tremendous amount of HELOC activity that will push more of them into distress.

[William Jones]

The housing market is like a giant food chain where what happens at one end, over time, eventually affects the other end. In a rising market, lousy properties in lousy neighborhoods rise in value...in a falling market great properties in great neighborhoods EVENTUALLY suffer, but the effects are not uniform. It will take a while for things to get sorted out.

[MyLessThanPrimeBeef]

I hope I am not a sexist to say that I am no Don Juan, but it is often said that, in love, in order to rise, one must stoop.

The same in high-end real estate. Before it can take off again, it must fall a lot.

Just imagine if prices fall 100% now how much higher they will be in the distant future!

Namaste.

[Nelcisco]

to Jag.....you remember those comments too.

Not everyone in L.A. is rich folks.

[TakeFive]

Prices are connected like two points on a door. The point near the hinge moves a little, while the point near the knob swings by a much wider amount.

Prices are not going to move too much in the desirable areas - too much demand. It only took till the 5th comment for a mention of Pasadena. And Last week week we had the story of NK who was willing to pay 600K for what sounds like one of the iffy areas of Pasadena.

When this is all done, expensive areas are still going to be expensive.

[CG]

Peter -- here is an interesting story about the auctioning of Gardena Village:

http://www.npr.org/templates/story/
story.php?storyId=90455179

[someday the ants will eat grasshoppers]

I posted data on about 70 properties under $2M in Westwood, Brentwood, and Santa Monica north of the 10 about a month ago showing asking price declines happening steadily in 2008. The fall continues (1.1 price reductions every day in those neighborhoods), and they are getting larger in size (average drop in May = $92K), but as I said before, with only one sale happening every 2.05 days, the comps are resetting slowly. But the trend is clear: asking prices on those houses continue to drop $998.87 per day on average. That means in 200-300 days at this rate, they will be priced closer to historical affordability averages. High rollers in rentals (that means you, too, Arti), be patient. Your day will come.

[Aldo818]

Makes perfect sense. I don't see why these neighborhoods would have been immune anyway. Isn't this what a real estate bubble does?

C'mon, it has to be a bubble if those home values increased 20%/year for more than 2 years. There can't be $500,000/year jobs raining from the sky to be able to afford those prices.

I understand that the high income market is not the same as the middle/moderate market but a bubble is a bubble and values were out of line from one end of the spectrum to the other. I still can't believe that the average home in Pacoima was going for $500,000 last year. Talk about a "red flag."

I'm not saying that homes in Beverly Hills are the same as the homes in Pacoima. I'm just pointing out the extent that the lenders went to get things out of hand.

[liz]

THE talented middle class are leaving los angeles. There are no new rich class who would be stupid enough to buy a palace in los angeles. If you have a chance to work outside the cesspool called Villagroisa's reconquista land, wouldnt you? the untalented middle class who cant go anywhere would just keep paying taxes for the Mayor's people. Sooner or later, this town would just be like Mexico. The rich scr---ing the poor with not middle class. If I were you, I would leave now.

[JED]

it is one housing market. there is no brighline separatation at 1MM or 10MM. what begins in one segment of the market must impact, to some degree, the rest of the market.

also, consider feedback loops. see today's NY Times - http://www.nytimes.com/2008/05/19/opinion/19mon1.html

[puckhead]

I think it was a slow newsday for the LA Times. I picked up the newspaper this morning and it was pathetically thin. So after reading this story, I can conclude the following;

a) prices in high end neighborhoods have declined some, but not as much as low end neighborhoods
b) some zip codes in high end areas show YOY decline in prices
c) some zip codes in high end areas show YOY increases in prices
d) the sampling from b & c above was so small that we cannot conclude anything regarding the % increases or decreases

Thanks a lot for wasting 5 minutes of my morning.

[Mike G]

Bloomberg News has a similar article. They note that there is some weakness in high end Bay Area neighborhoods as well, but, that the rich Bay Area neighborhoods are holding up a little better than LA.

http://www.bloomberg.com/apps/news?pid=
20601213&sid=a6svU0kprAG0&refer=home

[Tim K.]

TakeFive - I don't know about you, but I've noticed prices are most definitely falling in Pasadena. The quality of house that is asking $800K now is vastly greater than what was asking that same price a year ago.

Also, last year you would be hard pressed to see any REOs selling for less than $400K, and now it is common to see a new one pop up almost every week.

[Jovo Majstorovic]

What are all the Iranians in Beverly Hills going to do?

For the record, Palisades is holding up well.

[IToldu2CashOut]

In past CA housing bubbles it was the high end that fell the most. I've said this before, I don't see why the biggest housing bubble ever would be any different. Adjusted for inflation we will never see 2008 prices again in our lifetimes. To many things came together at once to create this mess, low interest rates, liar loans, subprime, arm, fraud. The confluence of all these factors will never come together again. The party is over. You are not that special. Your house is just a place for someone to live. One option among many. It is not made of gold. It will not fly you to the moon. Time to readjust to the new reality, similar to the old reality before the bubble distorted your mindset.

[Susan]

Peter, all you have to do is peruse the L.A. Times archives circa 1992. Tales of 3 years new PV townhouses cracking and crumbling away, and PV owners "getting killed" when forced to sell. Yes, forced to sell. People in affluent areas eventually can end up forced to sell if their businesses go sour.

It's all happened before.

[Laker]

"....Median sale prices fell by 13% in Beverly Hills in April, compared with the same month last year. Rancho Palos Verdes dropped 18% over the same period, while Newport Beach's 92660 ZIP Code took a 34% hit,...."

naaaa, no way, good areas like westside, san marino, PV, newport beach will never decline in prices.....said lefty, shockg and sometimes even puckhead.

Like some people here that are afraid to state it "officially", i can say it and you can write it down: price is expensive "good" areas will drop to 2001 levels. for some placed it means 50% cut from 2006 hayday levels. High end is not immune, in fact it will crash even more than low end. Remember the rule of thumb, OPTION ARM CAN (actually COULD) BUY TWICE THE HOUSE A TRADITIONAL LOAN CAN. NO OPTION ARM, NO DOUBLE PRICE. Real Price = 2006 price divide by 2.

[toby]

Duh.

The idea that every market BUT the ultra wealthy will be hit was just delusional to begin with.

[mark g]

Just search a zip/neighborhood area in redfin, and opt for the daily email update... over time you'll see new properties come on and then strart dropping in price... decent areas like Rossmoor, Seal Beach, Hermosa, Redondo, etc... certain properties have been on there a long time and the sellers keep having to drop prices. You can tell the person that has to sell, they'll drop there asking price significantly (say 15 - 30%) to get the sale... properties also drop off and re-appear so the history of the price drops don't appear... not fooling anyone!

[HP12c]

Palisades is holding up well? On what do you base that statement? Dreams? Doesn't something need to be selling in order to be measured? And if it's selling for 10-20% less than a year or two ago, is that "holding up well?"