The Jewel’s high-end home market appears to have gained immunity to the disease spreading throughout San Diego County and the nation. It seems that the recent shadow cast on the housing market has missed sunny La Jolla.
After three consecutive years as the most expensive neighborhood in the United States, La Jolla has fallen to number three among the nation’s 317 largest housing markets. Moving into first place this year was Beverly Hills, where the average home price is $1.8 million. Santa Monica is second at $1.77 million, while La Jolla comes in third at $1.76 million.
Those are the numbers according to Coldwell Banker’s 2006 Home Price Comparison Index. The comparison index, an apples-to-apples comparison of similar 2,200-square-foot homes sold in typical, middle-incom-level neighborhoods, shows the average home in La Jolla in 2003 sold for about $1.36 million. By 2004, the price had risen 25 percent to about $1.7 million. It climbed an additional 10 percent in 2005 to around $1.88 million.
The most recent figures available from La Jolla Real Estate Brokers’ Assocation, representing about 650 agents in the La Jolla area, reports the average sales price for 20 houses sold during September stood at $2.37 million.
Patrick Park is the current president of the brokers group. He and past president Joe Klatt agree La Jolla is and will continue to be less impacted than most other areas in San Diego by the home price decline.
Park believes the national downturn is overblown.
“I was just back at a Prudential summit meeting in Chicago,” he said, “and they said this is still likely to be the third best year in real estate history. The sky is not falling.”
Park conceded that the market’s scales have tipped in favor of the buyer.
“There’s more inventory,” he said. “It’s a little healthier market from the perspective of buyers, who have a little bit more say, other than standing in line.”
Klatt believes the real estate market has shifted down a gear or two.
“There isn’t any question things have slowed down in the number of escrows closing and opening,” he said. “The real estate market goes in cycles. We’ve been in a cycle for a long time that’s been a seller’s market. Now, it appears the pendulum is swinging toward a buyer’s market.”
Klatt said that if interest rates increase, the pendulum will swing even more toward buyers.
With La Jolla homes selling for $2 million and more, buyers are less concerned and less affected by interest rates.
“In the higher numbers,” Klatt said, “you’re mostly looking at people either paying cash or almost cash. If you buy a $10 million home and you’re borrowing $8 million, you’re able to deduct very little of that interest. It’s just a lot less advantageous for someone borrowing that much money.”
Jim Schultz is the associate vice president of Coldwell Banker La Jolla. He agreed with Klatt that the real estate market is a bit down but far from out. He said it’s too early to talk about long-term trends.
“It’s slowed down some, but it certainly hasn’t crashed,” he said. “The upper end of the market is still very strong.”
The lower end of the La Jolla market, however, is a different story.
“Stuff in the $400,000s and $500,000s is quite slow,” said Schultz, “but that’s just an average sales price for the city of San Diego.”
New home listings in the La Jolla market have slowed down dramatically over the past couple months, said Schultz, but he believes there is a good reason for that.
“Potential sellers, empty nesters wanting to make some sort of move, when they get the impression the market is not very good, there’s too much inventory, they’re just not bothering to list,” he said. “People comfortably well-off just ride this out, even if they have to wait a year or two.”
Many brokers, developers and mortgage consultants agree La Jolla has been negligibly impacted so far by the real estate downturn. They also believe the status quo is likely to continue.
“In La Jolla, we’re looking at a strong market where everything sells because buyers know prices are going up, and the longer they wait, the more they’re going to pay,” said Coldwell broker Rick Mitchell. “In some cases, we’re seeing price reductions, but that’s probably because those prices that were put on the market were too high to begin with.”
Mitchell said real estate remains one of the best possible financial investments, especially in the long term.
“We’re telling our buyers,” he said, “if you’re buying a home and going to have it for seven years or longer, history tells us, when you sell it, you’ll make a lot more money than if you bought it on speculation and sold after two years. Long-term housing has always been a great wealth-builder. But it should be a home first and an investment second.”
Louis Beacham, owner of Beacham Construction, said La Jolla is not immune to a price downturn. However, he said, there are enough projects already in the building pipeline to ensure any slowdown will not be felt for some time.
“There’s such a long lead time in construction projects,” Beacham said. “A lot of people started thinking about their remodels or new homes a year and a half ago. Six months to a year from now, we might feel the slowdown.”
Don Dewhurst of Dewhurst & Associates, a new-home builder and remodeler and third-generation firm in business in La Jolla since 1929, sees no evidence of a downturn.
“We haven’t felt a thing,” he said. “We’re pretty much swamped out in the field. We’re incredibly busy and have taken on new projects the past month.”
Dewhurst said a slowdown in new-home sales might actually help out the remodeling end of his business.
“It could be more people will be remodeling now, since there’s been a housing slowdown,” he said.
Nancy Gardner is the chief executive officer of California Mortgage Consultants. She agreed with others that La Jolla’s high-end market is governed by a different dynamic than the rest of San Diego. The Jewel is landlocked, built out, right on the ocean and is subject to a 30-foot height limit, she said, all factors that lead to a stable market.
“Condo coversions have come to a screeching halt temporarily,” she said. “But the only people selling right now are those who really need to for one reason or another. People wanting to buy are waiting, but that doesn’t mean the value is going to roll back.”
Gardner predicts the real estate slowdown elsewhere could change course again next spring.
“It will be a shortlived situation if, sometime next year, interest rates start to drop,” she said. “People here can afford their homes.”
Looking ahead, Klatt said his crystal ball is as good as the next guy’s.
“The trend seems to indicate it’s going to be a buyer’s market for awhile, I would say at least a year,” said Klatt. “That would push it to July of next year.”
But, Klatt added, that could be impacted by the international scene: a rise in oil prices, political conflict with North Korea or some other trouble.
“People don’t tend to buy in times of uncertainty,” said Klatt. “There are many, many things that can effect the decison to buy or sell.”