By MICHAEL EDLEN | Special to the Palisadian-Post
We are often asked how it is possible for Pacific Palisades home prices to have had such an extended period of steady increases.
Who are the current buyers and where are they coming from? Where is all the money coming from? Is there a change in where the buyers are coming from as compared to a few years ago? Have recent tax regulation changes made any impact on our market? Are prices still moving up?
A review of the current market shows some interesting answers, and also explains how the number of homes being sold is significantly lower than last year and the average prices are slightly higher.
The inventory of homes available now is almost identical with last year at this time. However, the average asking price is now above $4 million, which reflects a great shortage of more affordable homes available.
Approximately 25-30 percent of the buyers have been investor/developers for nearly six years. Two or three investors in particular did more than five projects each in the Palisades during those years, and another half dozen or so investors have built a few projects each during the same period.
The number of investor purchases has begun to diminish over the last several months. It appears that fewer than 20 percent of buyers now are for development.
This is due to many investors becoming more conservative as they have felt the higher-end market is slowing down in response to higher interest rates and some impact of the new federal tax regulations.
They are also more inclined to stay away from properties that will take much longer to begin construction due to Coastal Commission delays.
The percentage of homes bought by people who already live in the Palisades has fluctuated between 23 percent to nearly 30 percent in recent years, while purchases made by buyers from Santa Monica have ranged from about 15 percent to 23 percent.
There has been a slight increase in the number of out-of-state buyers, as well as families relocating from other areas of Los Angeles County and Northern California. It is evident that the Palisades’ appeal is stronger than ever, especially for younger new families.
This market became increasingly frustrating for many “seasoned” buyers. Even though the rates of sales and price increases have slowed down noticeably, a well-priced new listing may receive multiple offers quickly and sometimes is under contract within a couple of days.
Twenty-five percent of Palisades sales for the last six months have had multiple offers and on average have sold for five percent more than the list prices. About 20 percent of those sales were Marquez area homes with views, and nearly 30 percent were near The Village.
Twenty-five percent of these sales had only been on the market for less than one week. In four instances, highly committed buyers made an irresistible pre-emptive offer that the seller was impelled to accept within the first week of marketing. Furthermore, a handful of properties have been purchased before construction was even completed.
A steady growth of younger families has been a noticeable trend over the past five years. A fair number of these buyers are fortunate to have received substantial funds through their families, which has enabled them to qualify for loans that are still available at interest rates under five percent.
Some parents have purchased homes for their children as a way to transfer wealth to the next generation. Many of these buyers are attracted to The Village lifestyle, especially with the Caruso project scheduled for completion this September.
I believe that this unprecedented market strength could continue to some extent at least until either the cost of money (interest rates) or the homes available for purchase increases considerably. Also, some of the recent tax code changes have begun to impact the real estate market.
In particular, the greatly reduced deductibility of property taxes and loan interest payments has resulted in some transactions being canceled and some buyers becoming much more cautious.
For the past 31 years, Michael Edlen has provided real estate counseling services to prospective buyers and sellers and has sold over $1.5 billion. More tips and information are available on edlenteam.com. He can be reached at 310-230-7373 or email@example.com.