Low mortgage rates spur luxury home sales

By Daniel Taub and Kathleen M. Howley, Bloomberg News

California luxury-home prices surged last year, led by a record annual increase of 27.7 percent in Los Angeles, as low interest rates spurred purchases.
The average price of luxury homes in the Los Angeles area gained $428,000 to $1.97 million from a year earlier, according to a study Thursday by San Francisco-based First Republic Bank. The bank defines luxury homes as those valued at more than $1 million.

Low interest rates and a limited supply of luxury homes in California contributed to the rise in prices, First Republic Bank said. The rate on a 30-year fixed mortgage averaged 5.84 percent last year, compared with 6.96 percent over the preceding five years, according to mortgage buyer Freddie Mac.

In San Diego, the average luxury home price last year rose 16.4 percent to $1.84 million, and in San Francisco it increased 13.7 percent to a record $2.55 million.

Some common features of homes in First Republic's index are 3,000 to 6,000 square feet of space, three to six bedrooms, and three to six bathrooms, the bank said. First Republic Bank began compiling the Prestige Home Index with Case Shiller Weiss, a Cambridge, Mass.-based home-price research company, in 1995. The index uses data going back to 1985.

The index includes homes in the cities of Beverly Hills, Malibu and Pacific Palisades near Los Angeles; the Northern California neighborhoods of Piedmont, Tiburon and Sonoma; and the San Diego communities of Coronado, La Jolla and Carlsbad.

Los Angeles and Salinas were the least affordable U.S. metropolitan housing markets in the fourth quarter of 2004, according to a study of 160 U.S. markets released today by the National Association of Home Builders in Washington and Wells Fargo & Co., based in San Francisco.

In Los Angeles and Salinas, only 5.2 percent of residents earning a median income could afford to buy a median priced home, according to the study. The two cities tied as the least affordable market, at No. 159. In comparison, Lima, in northwest Ohio, was the most affordable U.S. city, with 94 percent of its residents able to buy an $84,0000 median-priced home.

Cumberland, Md., was the second most affordable city, with 92 percent of median-income households able to buy a $71,000 median-priced home.