LOW INVENTORY DRIVES PRICES EVEN HIGHER

By MICHAEL EDLEN | Special to the Palisadian-Post

Although it may be difficult for most people to conceptualize, the median cost of a Pacific Palisades home has increased to nearly $3.2 million. This equates to more than $1,100 per square foot, with an average home size of 3,670 square feet and lot size of 8,560 square feet. The unprecedented price level is clearly due to a few well-identified factors.

The greatest fuel for the continuing escalation of prices has been the relatively low cost of money for a remarkably long time. Although an increase in the cost of money has been long anticipated, interest rates still remain well below the more typical six to 11 percent. As a result, a large number of buyers have been able to obtain loan approval at higher prices than they would otherwise have.

The major reason for prices increasing as much as they have is that while the number of Palisadian sales has remained relatively constant for the past few years, the number of homes available for purchase has steadily diminished. For example, as of Aug. 1, 2016, there were 108 Palisades homes available for purchase, whereas this year there are only 68 available.

The inescapable economic law of supply and demand will almost always result in higher prices under such circumstances. Overall, median sale prices are 19 percent higher than at this time last year and the price per square foot is 12 percent higher.

Of course, there are various reasons why fewer people are listing their homes today. These include reluctance to pay capital gains taxes, uncertainty as to where they would live next and  family pressure to retain the family home.

It may be interesting to note that an even greater impact has been experienced in the local condominium market. Because it is almost impossible to find a home in the Palisades for under $1.5 million, many prospective buyers have elected to purchase a townhome/condominium. As a result, the market demand for condos has proportionately been greater than that for single-family homes. This has produced a relative shortage of condos which has led to an increase in median average prices by 27 percent.

The general numbers discussed above pertain to the Palisades community as a whole. As in most market areas, different sections of neighborhoods may have greater or lesser imbalances between supply and demand.

Two particular areas are experiencing the greatest degree of upward pressure: The Alphabet Streets and above, and the Rustic/Santa Monica Canyon area. Conversely, the areas currently experiencing the least upward pressure are the Marquez and Castellammare areas.

One obvious observation is what could be termed the “Caruso effect.” Properties closest to The Village tend to have the greatest demand, and therefore have the greatest pressure on inventory.

Since the 1970s, Westside real estate price movement has tended to be in nine- to 10-year cycles. Considering that the last downward moving cycle began in 2008, while history may not exactly repeat itself, it could be expected that another cycle would begin within the next six to 12 months. Some factors that could initiate this cycle include significantly higher interest rates, higher inventory available for purchase and/or changes in government regulations or tax code, or major international events. Only time will tell.

Michael Edlen has been carefully tracking and analyzing each neighborhood within the Palisades for more than 20 years. He and his team have an unprecedented 98+ percent accuracy 95 percent of the time in Palisades home evaluations. He can be reached at 310-230-7373 or michael@michaeledlen.com for a complimentary consultation.