Charting rough waters at the high end

This article was originally on a blog post platform and may be missing photos, graphics or links. See About archive blog posts.

Home sale prices in wealthy areas such as Beverly Hills, Rancho Palos Verdes and Manhattan Beach have held up better than lower-priced areas. But the number of homes sold has plummeted, with few buyers willing or able to make such high-end purchases.

The hard-core number crunchers at the Manhattan Beach Confidential blog have now plotted high-end home sales in six affluent markets -- the three communities mentioned above as well as Pacific Palisades, the Palos Verdes Peninsula and the 90402 ZIP Code in Santa Monica -- using MDA DataQuick sales figures, and have come up with a nifty graph linked here.

Home sales moved in nearly lock step in the communities, rising as prices flattened in the 1990s, and falling dramatically in recent years, as high-end prices remained sticky during the real estate crash.

Sales could pick up in high-end areas if prices fall, but tougher lending standards and job losses or income declines among wealthier individuals could offset attractive prices. Another challenge at the high-end is the smaller pool of trade-up buyers.

Foreclosure sales comprise the majority of Southern California home sales these days. When an investor or first-time buyer purchases a foreclosed house, she doesn’t move out of another property that needs to be sold. The bank selling the foreclosed house also does not go out and buy another house, generally a more expensive one, the way an individual seller in a normal market likely would.

But here’s something I’d like to throw out that will surely heat up the flaming commenters: Even if market fundamentals don’t support a rebound in high-end sales, isn’t it possible things like psychological factors could drive one anyway?

As New York Times economics writer Edmund Andrews shows in examining his doomed 2004 home purchase, even very smart people can be moved more by their hearts than their heads.

Markets may be bound to fundamentals over the long run, but they obviously can stray in the short term -- that’s why we have bubbles, isn’t it ?

-- Peter Y. Hong