CITYWIDE — It was a long time coming but one of the most desirable places to live in Southern California is finally seeing home prices drop.
In a city that was once considered insulated from the effects of the recession due to the affluence of the general population, single-family homes and condominiums are seeing their values decrease as demand similarly goes down.
The price of condominiums and single-family homes on average dropped about 18 percent in the last quarter — October to December 2008 — from the same period in 2007, according to Gary Limjap, a Santa Monica resident and realtor.
“The key word is insulated; and insulated and immune are two different things,” said Paul Habibi, a real estate lecturer at UCLA Anderson School of Management. “The market in Santa Monica was insulated from the rapid decline in housing prices but ultimately it was not immune to it.”
The reason can be attributed to the fact that most higher-end homes are typically purchased by an upwardly mobile class, the same group that is currently facing pressure because of the financial market crisis, Habibi said.
Each neighborhood in Santa Monica has been impacted differently with Sunset Park being among the hardest hit, seeing its home values drop 25-30 percent in the third quarter 2008 from the same time in 2007, Limjap added.
Properties are also staying on the market longer, averaging about 12 months before they’re sold, Limjap said.
“It’s a buyer’s market and buyers are still scared,” he said. “They feel if they buy something tomorrow, it will be worth less by the time it closes.”
There are currently about 106 single-family homes on the market in Santa Monica. Only four properties closed in January and another six are currently in escrow, Limjap said.
“In a fast market, we had a one-month inventory,” Limjap said. “Now a lot of properties are just sitting there and a lot are being listed and relisted with other brokers.”
He said part of the problem is that homeowners are setting selling prices at unrealistic values given the current market.
The number of property transfers, including residential and commercial, has also dropped about 15 percent from July to December 2008, according to David Carr, a principal budget analyst with City Hall.
“It is likely that the rate of growth in assessed values and property taxes will be lower than it has been in the past few years,” he said.
But while the housing market is slowing down in Santa Monica, the city remains an attractive place to live.
“Although prices have certainly softened, contrary to the doom and gloom, the Westside is very strong as far as purchases are concerned,” said Kate Bransfield, a local realtor. “There’s lots of buyers and open houses are busy.”
She added that the median price for single-family homes in the city overall increased from $1.6 million in 2007 to $1.9 million in 2008. Condominiums have actually decreased, from $780,000 in 2007 to $685,000 last year.
Mike Heayn, a loan agent for JP Morgan Chase, said that the Westside will remain a popular place to reside because of the amenities and the fact that many jobs are located in the area.
“In any higher value area, there is always going to be a decline, but the decline is going to be offset that much quicker,” Heayn said. “Those are areas people want to live.”
The recession could also be affecting the rental market, which experienced a growth early on when potential buyers were having a hard time qualifying for home loans. The demand has softened as unemployment goes up, mainly because renters, who tend to be young, are moving back in with their parents to save money, Habibi said.
“There is a very tight linkage between unemployment and the vacancy rate,” he said.
Habibi predicted it would be at least another 18 months before the market returns to normal.
“We need to see it bottom out first,” he said. “The only good news is 2009 won’t be nearly as bad as 2008 was but we still have a ways to go.”