The value of luxury homes in San Francisco, Los Angeles and San Diego, CA, rose in the first quarter of 2014 compared to a year ago, driven by a number of factors.

The value of luxury homes in San Francisco, Los Angeles and San Diego, CA, rose in the first quarter of 2014 compared to a year ago, driven by limited inventory, robust demand for homes in California’s most desirable communities and low mortgage interest rates, according to the First Republic Prestige Home Index for the first quarter of 2014.

The index indicated that values in the San Francisco Bay Area climbed 12.5 per cent from Q1 2013 and 3.4 per cent from the fourth quarter of last year. The average luxury home in San Francisco now stands at $3.17 million – an all-time high since the previous record in 2007, First Republic said.

“It’s an incredible sales market in San Francisco, Marin, San Mateo and Santa Clara counties,” said Mark McLaughlin, president of Pacific Union Real Estate.

But demand for luxury homes has outstripped supply in the region, the index showed.

“It’s like déjà vu all over again,” said Malcolm Kaufman of Alain Pinel in San Francisco. “It is not unusual for prices to go 15 per cent to 20 per cent over list. There is very strong demand for homes.”

Los Angeles

In Los Angeles, values rose 17.8 per cent from the first quarter a year ago and 5.6 per cent from the fourth quarter of 2013, bringing the average value of a luxury home in Los Angeles to $2.47 million (like San Francisco, this is an all-time high since 2007).

First Republic said limited inventory has pushed values higher in the area, with all-cash buyers continuing to represent a significant amount of activity.

“Prices in some Los Angeles neighborhoods have risen dramatically due to the very small number of homes on the market,” said Michele Hall of Coldwell Banker in Brentwood. “This is especially true on the West side of Los Angeles, including Beverly Hills, Bel Air, Brentwood, Pacific Palisades and Santa Monica. Buyer demand continues to be very strong and has been since the beginning of the year. Homes are routinely sold for more than the asking price often with multiple offers.”

Scott Gibson of Gibson International in Brentwood said half of his firm’s sales in March were all-cash.

“We have a lot of out-of-area buyers, both internationally and from outside the state. Prices will continue to rise as long as inventory stays low, the economy moves forward, and interest rates remain reasonable enough to give buyers confidence,” Gibson said.

Meanwhile, David Mossler of Teles Properties in Beverly Hills noted that the highest end of the luxury market was “very strong.”

“Quality properties that sold in 2005 and 2006 for $10 million now sell for more than $20 million. In LA, prices have never been higher than they are today. After the recent increases, prices seem to have leveled for now, but the lack of inventory continues to create great demand,” he said.

San Diego

San Diego area values gained 13.5 per cent year-over-year and 0.8 per cent from the fourth quarter of 2013, meaning the average luxury home in San Diego now costs $1.93 million.

“It was a pretty strong first quarter with a lot of multiple offers, but the number of sales was down,” said Peggy Chodorow of Berkshire Hathaway Home Services in La Jolla. “Going forward, I think it’s going to be a more balanced buyer-seller market, which is healthy.”

Market activity in Rancho Santa Fe was, however, slower in the first quarter. 

“There are too few buyers for the inventory we have,” said Chuck Gifford of Coldwell Banker in Rancho Santa Fe. “Rising prices and qualifying conditions are making it more difficult for buyers to find the right property.”