The year 2014 is under our belt, and the year 2015 is well underway, promising to be another brutal year on Buyers and stellular year for the Sellers. Numbers are in and the story is the same; Sellers got richer, prices went higher, Days on Market shortened and $/sq ft went up.
Let’s take a look at two of the most expensive areas of real estate; homes in Beverly Hills and condominiums along the Wilshire Corridor. (Notice – I’m purposely skipping the estates of Bel Air because it has such a limited draw at $10M and above).
I love Beverly Hills. Only in Beverly Hills do you get Sellers that put houses on the market just to see how the market will respond so they can “test” the values. It happens all the time in the “flats” of BH, and makes the agents crazy, who work for no reason. But that’s the nature of BH and their resident owners; they know they’re living on gold dirt and they use that to their advantage.
In 2013 there were 161 sales of single family residence homes (SFRs) reportedly sold and reported to the MLS. I’m sure there were private sales as well, and sales with out-of-area agents who did not have a contractual obligation to report it to the MLS. This compares to 159 sales reported in 2014, so basically it was the same. What was different?….A lot.
Days on the market drew down from 93.70 days to 74.40, a gigantic drop in the days an SFR is exposed to the market before going into contract. Dollar per sq ft also went up from $1,123 in 2013 to $1,184, a minor overall increase. How about this? In 2013 the highest priced home listed was for $58M, selling at 56.47% of that price at $32.750M. A year later, the highest priced home shot up to $85M and sold for 82.35% of the listed price at $70M. (There’s a lot more volatility at those higher numbers, where the business managers and attorneys are negotiating tougher positions on behalf of their rich clients.) For the rest of us peons, the average Listed Price to Sales Price in 2013 was 92.64% as compared to 93.42% in 2014. That somewhat minor 0.78% increase amounts to $31,395 on a mean average of 4,025,000 for homes sold in 2014, just for the negotiations! It’s even worse at the weighted average of $5,766,754, which becomes a $44,981 difference. We all know the real value is in the land, which particularly rings true in BH as you drive around and see all of the construction going on. A $330.77/sq ft average by lot size in 2013 mushroomed to $374.05/sq ft in 2014, representing a 13.1% rise in value of the dirt in just 12 months. Ouch!
Imagine you are a 70+ year old “boomer”, and you’re tired of the stairs in your gorgeous two story Beverly Hills home. It’s just you and your spouse, and you both decide that it’s time to move to the Wilshire Corridor with all of your friends, enjoy the amenities, avoid the stairs and their effect on your knees, and live a simpler life. No more issues with the handyman, the roofer, the gardener, the garbage in and out, trash cans in the alley, driving home and watching over your shoulder as you get out of your car, etc. However, you want to understand what the economic consequences are of living on the corridor on your budget, so you go to www.wilshirecorridor.com and pull down the “Buildings” menu, and start reading through the stats and comparing them to the square footage and floor plans. It’s time to cash in a little of the equity built up in the value of your home, buy a less expensive condominium, and travel with the surplus capital, while you can still travel.
So, what happened in the past two years on the Wilshire Corridor? Not all that dissimilar with the performance in Beverly Hills houses. In 2013 there were 155 reported sales, as compared to 144 in 2014. Very close Listing Price to Sales Price as well; sellers negotiated to 94.12% in 2013 and 92.74% of Listed Price in 2014. But how about the most important economic data on $/sq ft? A different story. In 2013 the average $/sq ft was $531, as compared to $615 in 2014. That’s a whopping $84/sq ft (14%) increase, or based on an average of 1,871 sq ft comes to $157,164 additional value for the same unit, just for waiting a year. For the average condo owner who waited a year, and incurred 12 months of HOA dues and property taxes and utilities and insurance and mortgage interest, I’d say that was a fabulous return on investment. The story for the sellers gets even better. The Days on Market shrunk also, from 100.56 in 2013 to 90.99 in 2014, meaning that the Sellers were on the market for 10 days less on the average, and incurred those carrying costs for a shorter period of time. Even though the weighted average sales price in 2014 was $1,239,793, the mean average was only $824,000, meaning an inordinate number of the actual sales were in the lesser “B-“ and “C” buildings.
How do these two giant luxury markets compare to each other? Just take this in as an example. In 2014, a total of $178,530,067 in gross sales of condominiums along the Wilshire Corridor were reported in The MLS spread out among 144 properties, as compared to $916,913,907 in Beverly Hills houses spread out among 159 properties. An average of $1,239,793 in condos versus $5,766,754 in houses. That’s a lot of equity moving with the largest source of new arrivals on the corridor, equity that equates to currency in negotiations and offers the Buyers the maneuvering room to pay higher prices for luxury Corridor properties.
My conclusions are very straightforward; (a) this coming year of 2015 appears headed towards a repeat for Sellers, putting them in the strongest negotiating position they’ve been in for years once again, and (b) condominiums are beginning to appear to be an excellent choice for investment, especially in the “A” and “B+” buildings.
We are going to address all of this and other macroeconomic questions in the first annual “Wilshire Corridor Economic Overview” conference, coming in the 2nd quarter of this year. Forecasters and statisticians will be joining us on a panel in a private two hour sessions sponsored by the Rogos. Details are forthcoming.
Happy New Year! Lynn and Mark