SAN FRANCISCO -- A record high "luxury" home price index that doesn't fully jibe with reports of lagging sales activity is a red flag indicating a spotty-market that warrants close scrutiny by both buyers and sellers.

Sellers who read the price index without heeding the sales figures could over-price their home and be left holding a listing that languishes on the market.

Home shoppers may buy into bidding wars that don't exist and pay too much in a flat or depreciating market in a given neighborhood.

And the spotty-market syndrome could be trickling down to mid-priced homes which aren't appreciating as fast as even cheaper condos and townhomes.

The First Republic Prestige Home Index for the fourth quarter 2000 says San Francisco Bay Area luxury home prices rose to a record $2,316,256, a 4.1 percent increase over the third quarter 2000 and a whopping 38.8 percent higher than a year earlier.

Developed by First Republic Bank and Case Shiller Weiss, Inc. of Cambridge, MA, the index tracks the value of homes worth $1 million or more in San Francisco and Los Angeles and $750,000 or more in San Diego.

The San Francisco Bay Area portfolio of properties includes a cross-section of so-called luxury homes ranging from 3,000 to 5,000 square feet, with three to six bedrooms, two and a half to six bathrooms and lots ranging from about 25,000 square feet to two acres in the cities of Alamo, Atherton, Belvedere, Danville, Healdsburg, Hillsborough, Lafayette, Los Altos, Los Gatos, Mill Valley, Moraga, Orinda, Palo Alto, Piedmont, Portola Valley, Ross, St. Helena, San Francisco, Saratoga, Sonoma, Tiburon and Woodside.

A half dozen of the cities are in Santa Clara County where high-end homes -- those for $1 million or more -- are blamed for holding the market in January to the smallest number of closed single-family home sales in recorded history, according to the Santa Clara County Market Update for January.

A high-end sales slow down is also responsible for initiated single-family home sales in January dropping to a six-year low, says the report's author, Richard Calhoun, broker/owner of San Jose, CA-based Creekside Realty.

Slower sales depress prices

Calhoun says while buyers should look for high-end bargains, he warned sellers to list their homes at prices that reflect a changing market which may not yield the price gains of 1999 and 2000.

"I think the properties over $1 million will see little to no gain. Prices may have actually already peaked and started to retreat. Sellers in this category need to me more realistic in pricing of their property as there are lots of high-end properties available," said Calhoun.

His report shows relatively larger inventories of more expensive homes which also remain on the market longer than less expensive homes. For homes less than $500,000, the days-of-inventory (DOI) was 30.1 in January. For homes between $500,000 and $1 million, the DOI was 70.2. For homes listing for more than $1 million, the DOI was almost twice as long, 130.5, said Calhoun. Days of inventory is a theoretical number indicating how many days the current inventory would last at the current sales pace if no new listings became available.

"During 1999 and 2000, the DOI was basically the same, regardless of price. The entire market seems to be slowing now, with the high-end leading the slowing trend," Calhoun said.

As sticker shock took its toll on San Francisco Bay Area home prices last year, another report also reveals braking pressure on mid-priced home prices.

The median price of condos and townhomes rose 28.7 percent last year compared to an only 20.5 percent rise to $364,000 for single-family homes, according to La Jolla-based DataQuick Information Services.

First Republic concedes over-priced homes don't sell, but says multiple offers at the high end still exist.

"The Peninsula brokers I talk with, including the two quoted in the index release, say that, yes, unrealistically priced homes are sitting on the market. Some sellers still think they're in the superheated market of last year. Conversely, homes priced appropriately still attract multiple offers over list and generally go fast," said Steve Pisinski, a First Republic spokesman.

Buyers and sellers are cautioned to keep tabs on sales and prices of all homes. As spring approaches with its seasonally more active market, a clearer picture of the spotty market should emerge -- for better or for worse.

"Small changes in the economy can make a significant change in the supply and demand balance of the real estate market. This downward pricing pressure on the high-end properties may spread to the rest of the market before summer," Calhoun said.

For more articles by Broderick Perkins, please press here.

Published: February 23, 2001

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Broderick Perkins parlayed a career in old-school journalism into a contemporary digital news service that really hits home. The award-winning consumer journalist, originally from Wilmington, DE, is founder, publisher and executive editor of the bootstrap DeadlineNews Group, a Silicon Valley-based editorial content and consulting service specializing in residential real estate, consumer news and related editorial consulting services. The DeadlineNews Group includes the website, DeadlineNews.com, offering real estate editorial content and consulting services, and its back shop, the Deadline Newsroom, an open house on news that really hits home. Perkins obtained his formal journalism education from University of Delaware and a journalism boot camp, the Institute of Journalism Education at the University of California-Berkeley. He went on to 20 years of service as a daily newspaper journalist at the Wilmington, DE News Journal and San Jose, CA Mercury News. Perkins covered housing on the San Jose Mercury News reporting team which earned a General News Reporting Pulitzer Prize in 1989 for coverage of the Loma Prieta earthquake. He has also produced real estate, consumer and small business content for the Wall Street Journal, Los Angeles Times, RealtyTimes.com, Nolo.com, Better Homes and Gardens, the National Association of Realtors, Homestore/Move and Intuit/Quicken among more than three dozen publications. In addition to managing the DeadlineNews Group, Perkins most recently served as chief editorial consultant for Nolo's Essential Guide To Buying Your First Home, Nolo, and writes real estate television scripts for RealtyTimes.com.