DTLA Condo Prices Show Volatility

LOS ANGELES—Condo prices in Downtown Los Angeles are beginning to fluctuate after a more than a year of steady appreciation, according to the monthly reports from the Mark Co. In September, new construction condo prices fell 2% and resale prices fell 4% and in May of this year, condo prices in the submarket had fallen by 6%. Although pricing is still up for the year, this new volatility begs the question, are we hitting a plateau in condo pricing?

The short answer, says Erin Kennelly, senior director of research at the Mark Co., is no. “I believe appreciation is slowing, but it is unlikely that we have reached the peak,” Kennelly tells GlobeSt.com. “Inventory is still extremely low, which is typically supports additional appreciation. I expect price appreciation to pause for the remainder of 2015, and then resume in early 2016 during the spring selling season.”

While that is good news—because there may be room to grow in the condo market—the slowing down of pricing may be a concern considering there are 2,000 condo units under construction right now in Downtown Los Angels. Kennelly, though, says that it isn't unusual for appreciation to slow in the second half of the year. “As a result, it is more likely that we will have some months where prices decrease compared to the previous month. Second, as many as half of the condominium sales in Downtown Los Angeles each month are presales at Metropolis, with the other half being resales at various other Downtown Los Angeles Developments,” says Kennelly. “Prices paid for new homes at Metropolis will not become available as public record until they close escrow in over a year. Until then, there will be a lot of confusion over what condominium values really are in Downtown Los Angeles.”

While pricing has slowed, condo prices for new construction are still up 10% year-over-year at $760 per square foot for new construction and resale condos fell to $604 per square foot. Pricing in the previous month was $772 per square foot. All of the new units on the market in September—a total of 124—are from the Metropolis development; however, last week, Metropolis launched sales efforts for the units in the newly completed tower II. “I expect increased competition from new developments over the next year to put a damper on prices and absorption of resales in older Downtown developments,” adds Kennelly. “However, once these new developments begin closing escrow in late 2016 or 2017, the gap between resales new construction prices in Downtown Los Angeles will narrow. Last month, the average resale price per square foot was $604, compared to reported list prices of $1,000 per square foot at Metropolis. Resale price appreciation will likely bring the gap to a more typical level of 10 to 20%.”