Housing Bubble

California luxury home values rise in Q1 2003

May 28, 2003

SAN FRANCISCO, /PRNewswire-FirstCall/ -- Luxury home values rose in California's major metropolitan markets in the first quarter versus a year ago, with Los Angeles values gaining more than 11 percent, according to the Prestige Home Index™ by First Republic Bank, one of California's leading providers of full-service banking, investment management, and trust services.

The Index, which has tracked homes valued at more than $1 million since 1985, found:

• Los Angeles area values rose 11.3 percent from the first quarter of 2002 to the first quarter of 2003 and were up 4.5 percent from the fourth quarter of 2002. Los Angeles values soared to $1.4 million, a level not reached since 1992.
• San Francisco area values rose 3 percent from the first quarter of 2002 to the first quarter of 2003, but were down 1.9 percent from the fourth quarter of 2002. The average value of a luxury home in San Francisco was $2.19 million in the first quarter of 2003.
• San Diego area values gained 0.8 percent from the first quarter of 2002 to the first quarter of 2003, but declined 2.3 percent compared to the fourth quarter of 2002. Values fell to $1.42 million from the record $1.45 million set in the fourth quarter of 2002.

"Luxury home prices in Los Angeles continue to appreciate, and they remain stable in San Francisco and San Diego," said Katherine August-deWilde, Chief Operating Officer of First Republic Bank. "Reflecting the continuing strength of the economy in Los Angeles, we saw values increase significantly year-over-year. San Francisco values have stabilized since their peak in 2001. In San Diego, the market is catching its breath after significant gains over the past three years."

"Historically, low interest rates make high end homes very affordable," August-deWilde added. "Buyers are attracted to the low carrying costs, realizing that even if prices decline somewhat, increased interest rates could make their desired home much less affordable."

First Republic Bank produces the Prestige Home Index each quarter with Case Shiller Weiss, a leading provider of automated property valuation services and home price metrics to U.S. financial institutions. Historical results of the Index are accessible at www.firstrepublic.com.

Los Angeles Area Values Soar

Despite uncertainty over war in the Middle East, Los Angeles values rose to $1.4 million in the first quarter of 2003, compared to $1.34 million at the end of 2002. The last time values were this high was in 1992, when the average value was $1.49 million. Home values were particularly strong on the West Side of Los Angeles, as well as in Orange County.

"Malibu has gone into the stratosphere," said Alan Mark, of Alan and Tony Mark Prudential Malibu Realty. "We have a limited amount of beachfront property, great schools, and this is a terrific place to live. Our entry level housing is pushing $1 million, and apartments, condos and beachfront properties are at levels we've never seen before."

Malibu prices are also rising because buyers in Los Angeles are purchasing second homes in the area. "I don't see it slowing down. We may have fewer sales because there is less product, not lack of demand."

In Orange County, values continued to increase significantly. "We're seeing appreciation in almost every neighborhood, and in some cases, in excess of 20 percent," said Cammy Leslie of Strada Properties in Newport Beach. "Sales are down because inventory is down, but prices are way up. We continue to have a shortage of homes in this area. This is where people want to retire. At the same time, job growth is still very good, and companies are moving here."

In Santa Barbara, prices at the top end of the luxury market have slowed, but that's not surprising given the significant appreciation of the past few years, said Dan Encell of Prudential California Realty in Montecito. He expects prices to continue to rise in 2003.

"It's been a good market, but not runaway appreciation," Encell said. "We're also seeing a shift in buyers, with more retired people coming to the area instead of families. The younger families have been priced out of the estate market."

San Diego Values Slow

San Diego values rose modestly from $1.4 million in the first quarter of 2002 to $1.42 million in the first quarter of 2003, but fell 2.3 percent from the fourth quarter of 2002. Still, average values in San Diego have increased a stunning 32 percent since the first quarter of 2000.

Bryan Yarbor of Prudential California Realty in Del Mar said the San Diego market is being driven by the fact it is one of the most attractive places to live in the United States. As a result, demand is strong for both new and existing homes. "All indications are that with low interest rates, prices will continue to move in a positive direction, although just a little slower than before," Yarbor said.

Steve Leggitt, with Sterling Real Estate Company in Del Mar expects consumers to take advantage of low interest rates, but he's noticed more cautiousness recently among buyers. "With rates where they are, buyers are jumping on the bandwagon, but they are conservative on price," Leggitt said. "We're seeing some offers coming in with prices lower than the sellers would like."

San Francisco Values Stabilize

San Francisco values rose 3 percent from the first quarter of 2002 to the first quarter of 2003, and were down 1.9 percent from the fourth quarter of 2002. Over the past two years, prices have fluctuated in a relatively narrow range. In 2002, for example, values declined modestly in the first and fourth quarters of 2002, but rose more than 2 percent in the second and third quarters of the year.

Pattie Lawton of Calegari & Associates in San Francisco said values will climb further now that buyers are no longer in a holding pattern, as they were during the first quarter. Falling rates and the end of war have improved the market's psychology somewhat, but sales are taking longer as buyers ponder their decisions. "San Francisco real estate doesn't seem to be tied to the San Francisco economy," Lawton said. "The economy may be down a little, but real estate is still moving up -- although not at the pace it had been."

Dianne Weaver of Hill & Co. in San Francisco said the real estate outlook in San Francisco is uncertain. Recent speculation about deflation has prompted some to hold off buying. "A number of people are looking, but buyers are more cautious," Weaver said. "I think prices might drop a bit, but not very much. For good properties and good locations, there is a good market."

In Marin County, homes priced between $1 million and $2 million are still selling briskly, often with multiple offers, said Alva Falla, of Frank Howard Allen in San Rafael. "Up to $2 million, the market is healthy. As far as prices go, I don't see them going down within the $1 million to $2 million range. I think we're at the bottom."

However, the market for homes above $2 million remains slow, as it has been for the past two years. In mid-May, Falla said there were 177 listings for homes over $2 million, but only 23 were in the process of closing. "We're going through an adjustment. Property values rose because of the stock market. What's happening now is that homes are still selling, but people are really looking for value. Sellers have to adjust their price to the market."

About The 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 are properties that are 3,000 to 6,000 square feet, have 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 Canada 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, Case Shiller Weiss 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 is a NYSE traded commercial bank and wealth management firm. As of March 31, 2003, the Bank had total banking and other assets under management and administration of $16.5 billion. The Bank specializes in providing personalized, relationship-based wealth management services, including private banking, investment management, trust, brokerage, and real estate lending. First Republic provides its full services online and through branch offices in San Francisco, Palo Alto, Los Angeles, San Diego, Newport Beach, Santa Barbara, Las Vegas and New York City. More information is available on the Bank's web site.

Source: First Republic Bank