San Diego Luxury Homes in Slump

With all the buzz about home sales in San Diego picking up, everyone has forgotten about the luxury market. There is a huge dichotomy between lower and higher priced market segments. In the luxury market, there are more homes for sale, less homes selling, more price reductions, more properties going off market without selling and more bank-owned and short-pay deals.

I did a CMA in Rancho Santa Fe last week and there were so many homes for sale that my jaw dropped when I printed the report. When we look at luxury markets like this, La Jolla, Mission Hills, Encinitas, we are finding that the number of homes for sale has been steadily rising over the last year. You can check inventory of all San Diego homes for sale at my website.

In another CMA that I did for Mission Hills, I found similar trends. What?s causing the buildup of homes for sale is that nothing is selling. I was amazed to find that only 2 homes have sold in Mission Hills for more than $1.4 million this year. This is in stark contrast to the last 5 years. You can view more stats on this at my Mission Hills real estate site.

When you combine a lack of sales (low demand) with a high number of listed homes for sale (high supply), it is easy to see how prices have been and are expected to continue to drop. The lower priced homes took a big hit in the last few years and this created a gap. Now the luxury market has to come down in price to close out that gap.

With very few homes selling, many listings are hitting their expiration dates and coming off market. When this happens, the seller has the option to relist with their old broker, try a new one, or simply not list their home anymore. In some cases, the homeowner is unable to go any lower on price without turning their sale into a short-pay. In this instance, if there is not a financial hardship, the bank will not allow a short-pay.

We are seeing more and more financial hardships for homeowners in the luxury market. With the economy down, many CEO?s and business owners are finding their earnings cut significantly. With a concurrent drop in prices, there is little equity for some to sell their home without bank approval. We are now beginning to see short-sales and bank-owned homes in the San Diego luxury market.

As you can see, the news for homeowners in our luxury markets is not good. Very few homes are selling unless there is a must-sell scenario. It will be these must sell scenarios that will continue to drive the prices down over the next 6-12 months.