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Luxury home prices are still heading down

While Southland housing values overall have rebounded from recent lows, those in the upper end of the market may not yet have hit bottom. Some experts don't see a turnaround for at least another year.

December 13, 2010|By Lauren Beale, Los Angeles Times

On its glittering surface, the Southern California luxury housing market still has plenty of pizzazz.

A 48,000-square-foot Versailles-style estate in Bel-Air that sold for $50 million is believed to be the highest-priced sale in the nation this year. Actor Sacha Baron Cohen spent $18.9 million on a Mediterranean villa in the Hollywood Hills, a record for that area.

Luxury housing: In the Dec. 13 Section A, a graphic with an article about problems in the luxury housing market listed ZIP Codes for the highest-priced homes in Southern California. It showed two locations for Rancho Santa Fe on a map: the correct one in San Diego County and an incorrect one in Los Angeles County. —

These trophy deals, however, are masking a larger malaise in the luxury market. Most mansions put up for sale are lingering for months without nibbles from buyers, real estate agents say. And although Southland home prices overall have rebounded from lows hit last year, the luxury market is still trending downward.

The troubles at the top may seem small compared with the huge housing declines seen in areas such as the Inland Empire. But a turnaround in the luxury market was the first indicator of recovery in the 1990s down cycle. And many experts say the housing market won't be healthy again as long as mansion prices are falling — which could be the case for at least another year.

"Good locations will be the first out, and luxury is generally in good locations," said economist John Burns, who heads a real estate consulting firm in Irvine.

Why the continuing funk? Analysts say the foreclosures and short sales that depressed home prices in general are finally catching up with the high-end market. The day of reckoning just took more time.

"Formerly affluent people who borrowed far too much money" are running out of staying power, Burns said.

The Times examined monthly sales data in 20 Southland ZIP Codes with the highest home prices, from Beverly Hills to Solana Beach, using information provided by research firm MDA DataQuick of San Diego.

In 10 of those areas, home values are still lower than they were a year ago, suggesting that they have yet to hit bottom. Median prices were basically unchanged in five areas and showed modest gains in five. Overall, 19 of the 20 communities are still below their high points.

Anne Rice said she feels a little awkward complaining about the real estate market. As a bestselling novelist, she realizes she is far more fortunate than most.

Even so, Rice isn't thrilled that she has had to reduce the asking price on her primary home in Rancho Mirage, near Palm Springs, by $350,000.

She hopes the new price of $2.95 million will attract a buyer, but it means taking a greater loss. Rice bought the six-bedroom, seven-bath home in gated Thunderbird Heights for $3.6 million in 2005.

"The market has been hard on us," said Rice, who wants to downsize. "All my high-earning years, I invested in real estate.... I have lost money now on two — quite dramatically — selling an $8-million property in La Jolla for $6.5 million and a property in New Orleans for less than cost and improvements."

Southland home values plunged 51% from 2007 to 2009. But they've shown steady improvement over the last 18 months, gaining back about 15%.

In contrast, home values at the upper end have not fallen as far but have shown few signs of recovery, according to MDA DataQuick figures.

There are 44 ZIP Codes in Los Angeles, Orange, Santa Barbara and San Diego counties where median prices exceed $1 million. Prices in these high-end communities dropped nearly 26% from their January 2008 peak to April 2010. They have gained back 5% since then.

Prices in Rancho Santa Fe, ranked by Forbes as the third most expensive community in the nation, have fallen nearly 31% since their 2005 peak, and they have yet to turn the corner.

Through October, Beverly Hills 90210 had the highest median of these top-priced neighborhoods at $2.7 million. That's down a mere 18.7% from the 2008 crest, but it too has not shown any rebound.

While the overall drop in value has not been as severe as that at the lower end of the market, the fact that prices in many areas continue to fall acts as a brake on sales — as buyers hold off making purchases out of fear their investment will immediately decline in value.

Luxury real estate brokers are feeling the pinch, as fat commissions are fewer and further between.

"We're seeing a lot more sales in the $1 million and below range," said John McMonigle, president of McMonigle Group, an Orange County firm that specializes in selling luxury properties. "We had 121 homes close escrow in Newport Beach in September at an average of $1.15 million, but when you drill down, one thing is concerning: There was only one house over $5 million."

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