2010 West Hollywood Market: Single Family Market Off 29% From 2007 High; Median Condo Price Unchanged from 2009 to 2010. Establishing the Foundation for a New Market Bottom?
In 2010, the single family home market in West Hollywood took another step down in price to a median of $779,000. Since the market peaked in 2006 - 2008, the median sale price has declined 29% and now stands at 2003 - 2004 levels. In our opinion, the market that has spiralled downward for the past two years is establishing the base for a new market bottom. But for now, the only apparent trend is a steady decrease in median price.
Timing is everything, and the short term story differs greatly from the 14-year "buy and hold" strategy portrayed above. The value of a home purchased in West Hollywood after mid-2003 is likely below the original sale price. The market appears to be in the process of bottoming out, and these homeowners in the future have the potential to recoup their losses, but for now they're "underwater" with regard to their purchase price.
What led to the huge run-up in prices in 2005 - 2008? Easy jumbo loan financing, which allowed buyers to obtain loans greater than $729,750 with stated income (affectionately called 'liar loans'), fueled the buying boom during these peak years. During this heyday, a buyer could obtain a loan to purchase a million dollar home with no verification of income or assets. Is there any surprise there was a real estate bubble?
Now, jumbo loans are nearly impossible to obtain, and financing a million dollar home entails putting down $270,000 and obtaining the maximum $729,750 "jumbo conforming" loan. Since a 25%+ downpayment is required to make this purchase, the buyer pool has dwindled vs. the days when little or no downpayment was required.
The 29% drop in prices since the boom reflects: (1) borrowers' weakened financing following the economic crisis; (2) greater downpayment requirements for some loans; and, (3) tightened loan underwriting guidelines, which has eliminated many aspiring buyers from the purchasing pool because they can't qualify for a loan.
The condo market in West Hollywood, like the single family market, experienced its peak in 2006 - 2008 and has seen declining prices since that time. In 2007, the median price of a West Hollywood condo was $620,000; in 2010, it stood at $499,000, a decline of 20% in median value.
Because of their lower price point, sales of West Hollywood condos were much less impacted by the unavailability of jumbo loan financing than single family homes.
One important point to note is that the median price of a West Hollywood condo was virtually unchanged from 2009 to 2010 (a decline of a mere $1,000). We see this as an indication that the West Hollywood condo market has now stabilized. Barring huge increases in interest rates, will believe there will be no further price declines in 2011. The pervasive, negative buyer sentiment is perhaps out of line with a market that is recovering.
We hate to mix metaphors ... but we'll do it anyway. Our assessment of the West Hollywood condo market: we are far from "out of he woods" but buyers should now finally be able "to see the forest for the trees."