By MICHAEL EDLEN | Special to the Palisadian-Post
Arecent LA Times article noted that the median home price in Los Angeles County had now reached the all-time high set in 2007. This is consistent with nationwide statistics that suggest prices are at record levels now. Of course, while homeowners are enjoying the high valuations on their properties, potential buyers are experiencing greater difficulties. If interest rates increase as widely expected by the end of this year, it will shut even more people out of the market of their first choice, so there is a continuing sense of urgency to buy while they still can.
Some people point out that the real estate market generally has seen major adjustments in roughly 10-year cycles. If history were to repeat itself again, one might expect prices to move lower by the beginning of 2018. There are some significant differences, however, between the market environment in 2017 and that of 2007—we do not now have a financial crisis looming and mortgage rates are now substantially lower.
One perspective about the near-term future is that prices may not significantly decline unless and until there is a significant recession, substantial increase in the number of homes available for sale or some major international event that causes buyers to freeze up. In theory, though, prices are already at a point that some correction would be expected soon, especially in the coastal regions where price increases have been the greatest over the last five years.
So where does Pacific Palisades fit into the picture and what might be expected to happen since prices increased more than 20 percent above the previous local market values in 2007-08? Comparing first quarter Palisades statistics for the last ten years, one can note that prices here fell by 35 percent in the four-year down-market. Since then prices have increased by nearly 100 percent! As an example, the median price of sales was below $1.6 million in the market bottom of 2011. As of this month the median Palisades home sale in 2017 is more than $3 million. This is an unsustainable rate of price appreciation.
The inventory of available homes for sale in the Palisades below $4.5 million equates to less than 3 months supply, whereas there is more than nine months supply above the $5 million level. By general definition of markets, we have a strong seller environment here up to $4 million versus more of a buyer’s market above the $5 million level. This could be interpreted as a market that is becoming increasingly top-heavy. Another sign of this is that as of June 1, the average price of the Palisades homes for sale is $5.7 million and the median list price is $4.4 million.
Clearly our market has benefitted from the Caruso Village project expected to be in full operation next year. For the last few years more and more people have been coming into the local market seeking homes within walking distance of the village, and the ripple effect has even spread to the Highlands townhome market, where median sale prices are up 25 percent from last year at this time. The $1.5 million home seems to be a thing of the recent past and developers continue to compete with young families desperately trying to secure a home here soon.
One sign of market resistance to the lofty levels many Palisades homes have reached is the number of price reductions sellers often need to make to get a buyer into escrow. Over the last several months, 25 percent of the local listings have had to be lowered in price before contracts were entered into.
Michael Edlen has been tracking Palisades statistics since 1990 and provides complimentary market evaluations for local homeowners who want to know their approximate value for future financial planning or possible sale. He can be reached at 310-230-7373 or michael@michaeledlen.com.
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