Luxury home prices decline, helping to balance the sector

Luxury home prices in California, the nation’s most expensive real estate market, fell for the first time in two years as potential buyers waited for prices to fall and fewer sellers received multiple offers, according to a survey by San Francisco-based First Republic Bank.

The average price of a luxury home fell to $2.9 million in San Francisco, $2.35 million in Los Angeles and $2.15 million in San Diego, First Republic said. The bank’s survey covers hundreds of homes in places such as Atherton, Los Gatos, Orinda and Tiburon in Northern California and Beverly Hills, Pasadena, Malibu, Del Mar and La Jolla in Southern California.

“The housing market is softening from its runaway pace and heading toward a balanced market,” said David Lichtman, chief credit officer at First Republic, a private bank that has surveyed California luxury home prices since 1985.

Maxine Golden, a broker with Re/Max Real Estate Services in Newport Beach, said a client last year listed a three-bedroom Irvine town house for $1.25 million. The woman received several offers below the asking price before taking the home off the market in November. She listed it last month for $950,000 and it sold in a week, Golden said.

“Buyers stayed away and sellers pulled their homes and said they’d put them out in the spring,” Golden said.

First Republic’s Lichtman said that with fewer people looking to buy homes, “now there is a normal give-and-take in negotiation for price, terms and close of escrow.”

Bill McKeon, a Marin County real estate agent affiliated with Sotheby’s International Realty, noted that potential home buyers are “pickier because they have more advantage in this market.”

Fourth-quarter prices for a basket of high-end homes tracked by the bank’s own index fell 1.5% in the San Francisco area and 1.3% in the San Diego area. That’s the first quarterly drop in those cities since 2004, First Republic said. In the Los Angeles area, prices declined 0.8%, the first drop since 2002.

First Republic tracks prices, not the number of transactions, so the bank could not say how many sales occurred in 2006. The bank’s index tracks a basket of San Francisco-area homes that cost about $600,000 in 1985 and a group of homes in the Los Angeles and San Diego areas that averaged $1 million in 1985.