The value of luxury homes in the final quarter of 2012 rose by 8.4 per cent year-on-year in San Francisco and 4.4 per cent in Los Angeles, whereas prices recorded a slight fall in San Diego, according to First Republic’s Prestige Home Index.

The average luxury home in San Francisco is now worth $2.73 million in the San Francisco Bay Area and $2.06 million in Los Angeles. However, San Diego area values decreased 1.4 per cent year-over-year, with the average luxury home there now at $1.64 million.

“Growing demand from buyers, low mortgage rates and a lack of inventory continued to put upward pressure on values,” said Katherine August-deWilde, president and chief operating officer of First Republic. “Multiple offers are common in many high-end neighborhoods as buyers compete for a small number of attractive properties.”

San Francisco Bay Area

The Bay Area posted its fourth consecutive quarter of robust gains on a year-over-year basis, while prices in Silicon Valley were at levels not seen since before the financial crisis, First Republic said.

“There is no inventory on the market, particularly for homes priced between $3 million and $5 million,” said Mary Lou Castellanos of Sotheby’s International Realty. “A lot of money is pouring in from Asia and Silicon Valley,” Castellanos added. “Prices are back to where they were at the beginning of 2008.”

“We are starting to see some multiple offers, although that is the exception,” said Brad Garsten of Frank Howard Allen in Greenbrae. “Buyers remain picky, and sellers are demanding a good price. Inventory remains low.”

Los Angeles

The 4.4 per cent rise in Los Angeles area values was the largest increase since the second quarter of 2007.

The market is “very active,” said Jane Brill Gavens of Coldwell Banker Beverly Hills South. “Low inventory and pent-up demand, combined with low interest rates, high liquidity and foreign buyers, have created a perfect storm for a sellers’ market.”  

According to Barry Host of South Bay Brokers, the scarcity of inventory in Manhattan Beach is driving prices. “More buyers are in the market, and that is putting pressure on home prices,” he said. "We’ve had a number of multiple offers recently. We are also seeing many all-cash offers.”

San Diego

First Republic said agents attributed the fourth quarter and year-on-year decline in the value of luxury homes in San Diego to the seasonal holiday slowdown. Buyer interest was, however, “picking up,” they said.

Peggy Chodorow of Prudential California Realty in La Jolla said buyers believe that the market “bottomed out” a year ago. “Interest rates are good, and many say it’s time to get in,” she said. “In particular, the high end of the market is starting to move.”