California's Luxury Home Prices Down: Poll

Source : The Business Times, May 20, 2008

Fall for 2nd straight quarter due to banks demanding higher credit scores

(SAN FRANCISO) California's luxury home prices fell for the second consecutive quarter as banks required higher credit scores and downpayments, reducing the number of potential buyers in the state's wealthiest communities.

The average price of a luxury home in the San Francisco Bay Area declined 0.8 per cent from the previous three months to US$3 million, according to a survey by First Republic Bank, a unit of Merrill Lynch & Co. Los Angeles prices dropped 2.2 per cent to US$2.35 million, and San Diego prices fell 2.2 per cent to US$2.06 million.

'Values of luxury homes in California have declined slightly in price after many years of strong appreciation,' Katherine August- deWilde, president of San Francisco-based First Republic Bank, said in a statement.

Mortgages are more difficult to obtain after the world's biggest banks reported more than US$300 billion in sub-prime-related writedowns and credit losses since the beginning of 2007. The value of jumbo loans, those over US$417,000, probably fell below 10 per cent of the entire mortgage market in the first quarter, Guy Cecala, publisher of Inside Mortgage Finance, said in an interview. That's the lowest since the Bethesda, Maryland-based newsletter began keeping statistics in 1985.

In Los Angeles, prices fell 3.7 per cent from a year earlier, to the lowest level since the first quarter of 2006. In San Diego, they dropped 4.9 per cent to the lowest level since the second quarter of 2005.

Prices rose in San Francisco, climbing 2.9 per cent in the first quarter from the same period a year earlier, First Republic said.

Reduced availability of jumbo loans cut the median price of San Francisco homes and condominiums by as much as 10 per cent in March, DataQuick Information Systems Inc said last month.

'It's really a liquidity problem,' Mr Cecala said. 'There's no market for securitised jumbo loans. Investors are still not convinced that the mortgage market has cleaned up its act.'

First Republic tracks luxury prices with Fiserv CSW Inc, a provider of automated property valuation services for financial institutions.

'The strongest markets are the best neighbourhoods in San Francisco, desirable close-in suburbs and upscale coastal communities,' Ms August-deWilde said. 'The higher end of the luxury market is the most active.' - Bloomberg