By MICHAEL EDLEN Special to the Palisadian-Post Economists will tell you that housing prices should fall as available inventory increases and the volume of sales decreases. In January 2008, home sales in Pacific Palisades were 44 percent lower than in January 2007, and the number of homes available for purchase was 51 percent higher on February 1 than it was a year ago. Yet despite conventional logic, the median sales price here was more than 40 percent higher than in January 2007. A combination of factors can account for this anomaly. Performing statistical comparisons for a period as short as one month can be highly misleading, as many readers of the L.A. Times real estate section have already noticed. Since only 10 homes sold in the Palisades during January, calculating the median price is less reliable than when 18 homes sold last January. Second, buyers for whom financing issues are far less relevant seem to have been more committed to making home purchases in recent months, with 70 percent of January’s sales exceeding $3,000,000. We have recently observed that the ratio of escrows closed compared with new listings has remained almost identical in Pacific Palisades for the past four years. For example, there were 258 closed escrows in 2007, as compared with 317 closed in 2006. However, there were 370 new listings in 2007, as compared with 452 new listings in 2006. The same relationship has been consistent since the beginning of 2004, resulting in almost exactly a 70 percent ratio of escrows closed to new listings for each year. The traditional economic model would suggest that this ratio would have gone down towards 50 percent by this time. However, since that ratio is based on full-year statistics, it is premature to project 2008 numbers this early in the year. Perhaps the single most significant contributing factor to our local market’s median price strength is that relatively far fewer homeowners are strongly motivated to sell Palisades properties. Far more sales here are discretionary than in most other areas. Indeed, I frequently have discussions with local homeowners who then decide to lease their homes rather than sell, or who defer a sale until some later time if and when it might become imperative to sell. One of the most common concerns I hear repeatedly is, ‘Where else would I go?’ Not a lot of people living in this community want to retire to Oregon, Montana or Colorado, let alone Florida, Arizona or Palm Springs. However, the decision to sell and move becomes easier when the homeowners have grandchildren in other cities they would like to be closer to, or in the event that their local property becomes burdensome to maintain. It has been my experience that a minimum of three months’ sales results are necessary to have greater confidence in statistical analyses. Thus we all need to wait another month or two before having a clearer picture of the local housing market in 2008.
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