Rate of home-price decline quickens in S.F. Valley; drop in first half of 1992 nearly equals full year 1991.

San Fernando Valley home prices appear to be dropping at an accelerating rate, but not as fast as the prices on Westside homes.

The average per-square-foot sales price for San Fernando Valley homes dropped 6.7 percent in the first half of 1992, compared with all of 1991. If that rate of decline continues for the remainder of 1992, the average valley home sale price would suffer a 13.4-percent drop in 1992, nearly twice the 7.5-percent drop suffered there in 1991.

While the 6.7-percent drop in six months might alarm some valley home owners, it is only about half the 13-percent drop suffered by Westside home owners during the same period.

Housing prices hit the skids
San Fernando Valley
Year             Avg. sale price             Percent
                   (per sq. ft.)              change
1992                 $147.78(*)                -6.7%
1991                 $158.34                   -7.0
1990                 $170.19                   -1.0
1989                 $171.88                  +70.8
1986                 $100.61                  +17.6
1983                  $85.57                     NA
Westside
1992                 $284.24(*)               -13.1%
1991                 $327.06                  +14.9
1990                 $284.68                  +10.2
1989                 $258.28                  +49.2
1986                 $173.14                  +18.6
1983                 $145.96                     NA
* First six months
NA = Not available

San Fernando Valley home sale prices have held up relatively well so far this year, compared with those on the Westside, because 40 percent of valley homes sold were "entry-level" (priced under $250,000). The entry-level market throughout California has held up much better than higher-priced markets during the recession because more buyers can afford entry-level homes. Meanwhile, prospective buyers looking at Westside homes, which predominantly sell for $600,000 to $900,000, are expecting much greater discounts. Many of those high-price buyers are staying on the sidelines to see if prices will drop further. And brokers predict they will.

A study conducted exclusively for the Business Journal by Riverside-based TRW-REDI Property Data showed that the average per-square-foot sales price for Westside homes increased for nine consecutive years prior to its 13-percent fall in the first six months of this year.

The TRW-REDI study also showed that the most-active price range for Westside homes sales during the 18 months ended June 30, 1992 was $601,000 to $700,000. Meanwhile, the most-active range for the San Fernando Valley was $301,000 to $350,000 for that same 18-month period.

TRW-REDI market research analyst Nima Nattagh cautioned that the decline in average sales price per square foot has not hurt all San Fernando Valley or Westside home owners equally.

"The moderately priced homes in West Los Angeles didn't decrease in value like the expensive ones in Bel-Air or the beach areas," Nattagh pointed out.

The drop in price was more evenly distributed in the San Fernando Valley, where 51.8 percent of homes sold in the 18-month period ended June 30 fetched between $276,000 and $400,000. By comparison, 61.7 percent of Westside homes sold in that period went for between $601,000 and $900,000.

The TRW-REDI study showed the average sales price per square foot on the Westside during the first six months of 1992 dropped 13 percent, compared with 1991. Specifically, the average Westside per-square-foot price for the first six months of 1992 was $284.24, compared with $327.06 in 1991.

The average price per square foot for San Fernando Valley homes sold during the first six months of 1992 was $147.78, compared with $158.24 in 1991, according to TRW-REDI data. That represents a 6.7-percent drop.

Officials at some of the largest real estate brokerage firms in Los Angeles agreed with what TRW-REDI's data revealed -- declining home values in the San Fernando Valley are leveling off faster than those on the Westside. And that trend will continue in the months ahead, they said.

Prominent Los Angeles broker Fred Sands, owner of Westside-based Fred Sands Realtors, and Jon Douglas, owner of Beverly Hills-based Jon Douglas Co., both agreed that Westside home prices have not hit bottom yet.

"The values in the valley are off from 1991, but nowhere near what they are in West Los Angeles," says Jon Douglas. "We need an uptick in consumer confidence. The buyers have to believe the market has hit bottom and that won't happen until mortgage interest rates start to climb and the unemployment rate drops."

Sands offered a slightly different perspective by asserting the trend is being driven by price, not geography.

"Home prices at the high end of the market on both sides of the Santa Monica Mountains were hit hard in the last year," Sands said, adding that one Westside home listed for $8 million recently sold for $5 million. Valley sellers also have a tough time selling homes that cost more than $800,000, according to Sands.

The drop in prices is good news to some.

"There are a lot of wealthy contrarians who have lived in modest homes for many years," Sands claimed. "Some of them are now taking advantage of the situation in the estates market on both sides of the mountains."

Erny Pinkert Jr., owner of Brentwood-based Norton Realtors, was among those who painted a bleaker picture for the Westside than for the San Fernando Valley.

"There is too much debt on a lot of these homes on the Westside," he said. "Owners refinanced them in the late 1980s at high values. Now that values have dropped some of them owe more on their homes than they are worth."

Pinkert added that October sales volume in his office dropped 20 percent, compared with September.

In contrast, San Fernando Valley's relative affordability helped residential agents working that market increase their October sales volume by 7 percent, compared with 1991, said Jim Link, executive director of the San Fernando Valley Board of Realtors. Helping the San Fernando Valley's relative affordability even more is the fact that monthly mortgage payments have dropped along with interest rates.

At the end of October this year, 30-year, fixed-rate mortgages were available at 8 percent. At that rate, the monthly payment on a $270,000 mortgage (an average-sized mortgage for the valley) would be $1,981. That same mortgage at 10 percent would require a $2,369 monthly payment, Link pointed out.