Wednesday, January 6, 2010

West Hollywood Market: 2009 $835,000 Median Price off 22% from 2007 Peak, Sales Decline 62% from 2004

It's a new year and a new decade and a great time to take stock of what has happened over the past few dizzying, topsy-turvy years in real estate. We're first going to look at what has unfolded in our home turf of West Hollywood.

Home Prices West Hollywood 2004 - 2009Single Family Market. The charts above and below provide a snapshot of how the wave of liberal lending led to a boom in prices that peaked in 2007 -- and then a subsequent crash when lending was tightened.

From 2004 - 2007, the median home sale in West Hollywood rose 34% from $795,000 to $1,065,000. This was the time of "stated income", "no documentation" loans, and "100% financing."

That era ended in August 2007, when the banks started to turn off the lending spigot (since some of their "liar loans" started to turn sour.) From 2007 - 2009, the median home sale declined 22% to $835,000.

We can see the same trend in the number of sales $1 million and higher. There were 65 of these in 2007, 39 in 2008, and 17 in 2009.

Home Sales West Hollywood 2004 - 2009Sales show a different trajectory. The number of home sales in West Hollywood declined 38% from 2004 - 2007 and then declined 39% from 2007 - 2009. In fact, the number of home sales in West Hollywood in 2009 is down an incredible 62% from the number of sales in 2004.

Condo Prices West Hollywood 2004 - 2009Condo Market. The trends for the condo market in West Hollywood mirror the single family market.

From 2004 - 2007, the median condo sale in West Hollywood rose 35% from $450,000 to $609,000. From 2007 - 2009, the median condo sale in West Hollywood declined 20% to $485,000.

Condo Sales West Hollywood 2004 - 2009Sales have also been battered during this time. The number of condo sales in 2009 was down 55% from peak sales in 2004.

Conclusions. The single family and condo markets in West Hollywood have a similar profile, and we can draw similar conclusions from the data:

  • Current prices are at 2004 levels
  • The West Hollywood market peaked in 2007
  • The 2009 median home sale price of $835,000 is just above the $729,750 "jumbo" conforming loan limit for Los Angeles County. Financing dictates pricing.
  • The 2009 median condo price of $485,000 is just above the $417,000 conforming loan limit for Los Angeles County. Financing dictates pricing.
  • The greatest number of sales took place in 2004 with a rising market and liberal lending.
  • The fewest number of sales took place in 2009 with a declining market and tight lending.
The boom and subsequent bust in the real estate market over the past six years was largely structural in origin, caused not by an increase of salaries or population, but by the availability of cheap money. As we analyze the data of other neighborhoods, we will likely draw similar conclusions.

And what can we extrapolate for 2010 and beyond? If the economy doesn't "lose the other shoe", we are expecting a stabilizing market. Big price declines -- and job losses, and stock portfolio losses -- have already taken place. The economic outlook is dour, but West Hollywood still remains a central, highly-sought after neighborhood in the US's second largest city. We expect 2010 to look and feel a lot like 2009.

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