Wednesday, January 4, 2012

West Hollywood's Mixed Bag: Median Home Price Rises 15.1% in 2011, while Median Condo Price Falls 3.8%

It's a new year, and we have the opportunity to look back and see how different Los Angeles housing markets fared in 2011.

First up, West Hollywood.

In the big picture: get out the Champagne.  The market has "turned around"median home price in West Hollywood is up 15.1% over 2010, there are fewer distressed properties on the market.  Last year we saw inklings that that the West Hollywood home market was bottoming out, and this year there was a big jump in pricing.  Not entirely surprising given 2011's historic low interest rates, but this is a major "inflection point" after the woeful 29% decline in median price in 2008 - 2010.

West Hollywood Median Home Price up 15.1% in 2011 

Although the median home price is up, the median condo price declined 3.8%, to $480,000.  How can this discrepancy be explained?  Is the market improving, declining, or bifurcating, in which the prices of homes and condos take separate courses?

West Hollywood Median Condo Price down 3.8% in 2011

Our analysis shows that the origin of the condo price decline is the high percentage of distressed properties (short sales and foreclosures) on the market.

For example, in the last quarter of 2011, 8.3% of home sales were distressed, while 25.0% of condo sales were distressed.

Distressed properties sell at a discount to a"fair" market price and drive down the overall market.

In the case of condo buildings, one distressed sale can make financing another unit in the building more difficult, creating a downward cascade in pricing.

In this market, condo buyers should expect to obtain good "value". And given the distressed competition, condo sellers should set realistic expectations about the state of the market.

Home buyers in West Hollywood cannot afford to be so picky: the biggest wave of short sales and foreclosures is behind us and they are missing out on good opportunities today as prices rise higher tomorrow.  Sellers in West Hollywood should no longer hesitate to put their homes on the market ... the days of "doom and gloom" (in this corner of Los Angeles) may be behind us.