The value of luxury homes in California’s major metropolitan markets rose in the second quarter of 2012, with the biggest hike recorded in the San Francisco Bay Area, according to the First Republic Prestige Home Index.

“During the first half of 2012, buyers were motivated by a lack of supply and very low interest rates,” said Katherine August-deWilde, president and chief operating officer at First Republic.

Property values in the San Francisco Bay Area climbed 6.6 per cent from the second quarter of 2011 and were up 2.9 per cent from this year’s first quarter. The average luxury home in San Francisco now costs $2.67 million.

Jay Costello, president of Hill & Co in San Francisco, noted how 40 per cent of the properties are selling above their asking price, with 30 per cent selling at their asking price and 30 per cent selling for less. 

“It is now common to have multiple offers in all price ranges in all neighborhoods,” Costello said. “We have a hot market right now, and we’re going to see price increases over the next three to five years.”

Palo Alto, Atherton “red hot”

“In the second quarter, Palo Alto and Atherton were red hot,” said Ken DeLeon of DeLeon Realty. “Palo Alto is setting all-time highs.”

In the East Bay, Adam Betta of Highland Partners in Piedmont explained how many sellers have underestimated the re-sale value of their property. “Since January, a sense of urgency has come back to the market, particularly among luxury buyers,” he said.

Meanwhile, in Los Angeles values increased 2.4 per cent from 2011’s second quarter and jumped 4.3 per cent from the first quarter of 2012. The average luxury home in Los Angeles is now worth $2.04 million.

Competition

According to First Republic, real estate agents believe a lack of supply has created strong competition for properties. “Anything from $1.5 million to $3 million is selling,” said Anna Solomon of Prudential California Realty in Brentwood. “Properties from $900,000 to $1.5 million are in even higher demand,” she added.

Meanwhile, in Beverly Hills, Myra Nourmand of Nourmand & Associates said there was active demand for properties worth over $10 million. “It’s a combination of pent-up demand, very low interest rates and a lack of product. We’re also seeing a lot of new wealth coming to the market, as well as foreign buyers.”

San Diego "soft"

Although San Diego area values gained 2.5 per cent year-over-year, they dropped 0.2 per cent from the first quarter of the year, with the average luxury home in San Diego now valued at $1.65 million.

According to Chuck Gifford of Coldwell Banker, the luxury market there “remains soft,” noting that many sellers are trading down to lower-priced properties. He also said many homeowners “can’t sell” because they have no equity in their homes after buying at the peak of the market.

Lastly, in La Jolla, Mo Loghavi of California Prudential Realty remarked that properties worth under $4 million are moving but demand for those worth over $4 million remains flat.