Condo prices have a long way to go

Heading into June, there are several good omens for the local condo market. For starters, the inventory has shrunk.

Heading into June, there are several good omens for the local condo market. For starters, the inventory has shrunk. About 40 condominium units in all of Malibu are currently for sale, compared to 2008, when the inventory tallied about 70 units listed. Furthermore, the pace of sales has picked up. A growing optimism in the condo marketplace is a good indicator for all of Malibu real estate fortunes to come. The next stage in the cycle might be price increases, as demand outflanks supply.

But these positive signs do not obscure a larger reality: The condo market has a long way to go.

At this point in time, condos are selling at prices about 35 percent lower than they were at the height of the market in 2005-2006. Furthermore, the pace of sales, while improving, is still well short of the hectic swiftness of those distant years.
The adjacent chart compares the glory years of ’05-’06 (all 24 months worth) with the Malibu market since 2011 began (through, April, a 16-month tally). The locations are grouped by relative price tiers, as of 2005-2006. For example, only two local complexes, the Malibu Canyon Village condos on Civic Center Way and the Malibu Gardens off Kanan averaged under $600,000 per sale during 2005-2006, and are thus grouped together. The units in those complexes saw 27 sales over the two years, averaging $573,000.

During the first 16 months of 2011-2012, however, 13 sales have averaged $363,000. As such, the very low end is still 37 percent off from the high, locally.

Units located directly on the beach are selling at a similar pace to ’05-’06. But the current average sale of $1,431,000 (for a variety of units, in multiple locations along the coast) is about 29 percent less than 2005-2006. More expensive units, such as the Zuma Bay Villas and the newer Toscana complex near Webster School, are selling at a very slow pace and averaging 40 percent less in value than ’05-’06. All of those locations averaged better than $1.5 million per sale six years ago.

The specific results of each complex are not featured here, but there are a few notable mentions:

- The Lunita townhouses above Broad Beach (known officially as Vista Pacifica) had 17 sales during 2005-2006, but none through the first 16 months of ’11-’12 (one unit closed last week).

- No other complex has suffered price erosion as badly as the Malibu Villas. The complex averaged $769,000 for the 26 sales of ’05-’06. For recent months, the average price has been $379,000. That drop is over 50 percent in value (albeit no units are for sale under $400,000 at this writing).

- In contrast, the next-door neighbor to Malibu Villas, across the street from Paradise Cove, is The Pointe, an upscale, gated, newer complex. The Pointe has survived the rough market better than most. Units sold for an average of $1,160,000 during ’05-06. Sales recently have averaged $923k. The drop-off of 20 percent is about the most favorable in Malibu.

- All price tiers up to $1.5 million average (in 2005-2006) are 33-38 percent off at this time, a consistent reflection of overall market values.

In all, sales during ’05-’06 averaged 8.4 per month. The last 16 full months have seen only 5.5 sales per month, so the pace is still lagging. Particularly, the higher-priced units off the beach are struggling to find willing and capable buyers.

For the individual or family hoping to get a toe-hold in the Malibu market, a condo is a good place to start, with buying opportunities still remaining under $500,000. For the purely investment-minded, the dream of returning to 2005-2006 prices can be alluring. If prices go up 50 percent, that would compensate for a 33 percent reduction from the previous high. (For example, a $1.5 million unit in Toscana lost about 33 percent of its value, going to $1 million. Getting back to $1.5M would equate to 50 percent appreciation). Thus, a buyer putting down 25 percent of the purchase price would make a 200 percent return on their investment if and when the day comes we see 2005-2006 levels again.

How long might it take to go back to 2006? Even if it were 10 years, an average of 20 percent return on the initial investment is not bad.