Luxury Homes In Rancho Santa Fe

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My recent blog posts have discussed the resurgence of demand and the stabilization of prices of entry-level and mid-level homes in San Diego, CA. This post discusses the market conditions for upper-end San Diego luxury homes and estates. The upper end homes in San Diego are staying on the market longer, and sellers are finding it necessary to reduce prices and negotiate concessions with home buyers. Upper-end homes in San Diego are loosely-defined as houses in the $1 Million-plus range, and the main luxury home neighborhoods in San Diego are Rancho Santa Fe, La Jolla, and Del Mar, followed by Point Loma, Ocean Beach, Pacific Beach, Cardiff by the Sea, and Carlsbad.

There is one main explanation for the disparity of market conditions between entry-level homes and luxury homes, and that is the mortgage market. The current super-conforming FHA loan limit for San Diego County is $697,500. Qualified buyers can obtain FHA loans with as little as 3.5% down payment (equal to $17,500 on a $500,000 loan), and buyers are able to request that the seller pay closing costs in excess of the down payment amount. Interest rates for 30-year fixed rate loans in this super-conforming loan category have risen recently from around 5% to closer to 5 1/2%, but these rates are still very low interest by historical standards. The combination of low down payments, seller credits toward closing costs, low interest rates, and recent declines of San Diego home prices has made entry-level homes more affordable than they’ve been for many years. Buyers are out in droves to take advantage of the opportunity, and supply has not kept up with demand. Entry level home prices are rising as a result.

In contrast, mortgages above $697,500 are called Jumbo Loans. The Jumbo Loan market has gotten tighter in recent years, and only a handful of banks/investors are still funding Jumbo Loans. High credit scores, long-term detailed W-2 employment history, and high income requirements are preventing many would-be luxury home buyers from getting Jumbo Loans. For those who qualify, Jumbo Loans are available in the 7%+ range, which is substantially higher than the 5 1/2% range that is available for FHA loans. A minimum of 20% and up to 30% down payment is often required (equal to $200,000 to $300,000 on a $1Million loan). Then, even when loans are available, many luxury home buyers are finding that appraisers turning in low appraisals for the upper-end homes. And when the appraisal comes in low, the lender typically refuses to give financing and deals fall apart. Even though luxury home prices have dropped substantially over the past three or four years, these financing issues are discouraging luxury home purchases.

One of the premier luxury homes neighborhoods in San Diego is Rancho Santa Fe, and recent activity with the Rancho Santa Fe real estate market provides a good snapshot of the state of the San Diego luxury homes market in general.

There are only about 3,400 houses in Rancho Santa Fe, and these are typically large estates on multiple acres. Rancho Santa Fe horse properties and equestrian estates are very highly esteemed by celebrities, corporate executives, and the San Diego elite. The “Covenant” of Rancho Santa Fe is the most well-known and exclusive original RSF neighborhood, surrounded by a number of newer developments that are also upscale. But, all other things being equal, homes and land in the Covenant typically sell at higher prices than homes outside the Covenant. Differences in lot sizes and amenities that are included with Rancho Santa Fe luxury homes and estates also make valuation particularly difficult, but there is a clear trend.

Rancho Santa Fe Homes For Sale (Zip Code 92067)

There are currently 305 Active Listings of homes for sale in Rancho Santa Fe. This represents more than 9% of all the houses in Rancho Santa Fe, which is a very high percentage. No more than 1% to 2% of homes in most neighborhoods are for sale at any given time, even in recent years.

  • High List Price: $35 Million for a 6 Bedroom, 13 Bathroom 20,065 sq. ft. mansion on 9 acres at 16337 Los Arboles in the Covenant of Rancho Santa Fe. Long-time owners purchased the home in 1992 for an undisclosed sum, but the tax assessment on the property is $9,107,947 and the seller took out a mortgage for $5,570,000 in October 1997. It’s safe to say that the sellers still have equity in the home, but it’s also safe to say that the home is overpriced. It has been on the market for 416 Days, and will likely fail to sell without a substantial price reduction.
  • Low List Price: $895,000 for a 4 bedroom 3 Bathroom 2,710 sq. ft. fixer-upper house on just over one acre at 17335 Via Del Bravo in Hacienda Santa Fe (Not in the RSF Covenant). This home has recently gone into foreclosure. The last market sale was for $700,000 in May 2001.
  • Average Rancho Santa Fe Home Currently for Sale: $4,801,134 for 4 Bedrooms, 5 Bathrooms and 6,706 sq. ft. of living area. The average asking price per square foot of the 305 homes that are currently on the market is $742.09 per sq. ft., with an average market time of 157 days on market (over 5.2 months).

19 Rancho Santa Fe Home Sales Currently Pending (In Escrow)

  • High Pending Sale Price: Spectacular estate with 6 Bedrooms, 8 Bathrooms and 11,650 sq. ft. of living area on 2.69 Acres, located at 6883 Alydar Corte in the Del Rayo Estates. This Rancho Santa Fe estate was originally listed for $9,800,000, but the asking price was reduced to $7,995,000 before an offer was accepted. The last market Sale was for just $1.2 Million in October 1996, but the current owners refinanced the home with a $4M loan in Feb. 2002 and put four years and hundreds of thousands of dollars into renovations. The list price represents $686.27 per square foot of living area, which is below the average list price per square foot of the other Rancho Santa Fe homes currently on the market. This home has been for sale for more than 3 ½ YEARS, and has finally found a buyer.
  • Low Pending Sale: Fixer-upper house with 4 Bedrooms, 4 Bathrooms, and 3,080 sq. ft. of living area, just inside the covenant on a busy street at 16625 Via De La Valle. This is a foreclosure property, originally listed for $1.290M and quickly reduced to $950,000 (just $308.44 per sq. ft.), and the home went into escrow after just 34 days. The last market sale was for $1.350 Million in March 2004, so the buyer of this foreclosure property is buying at discount of about 30% below the 2004 price.
  • Average Rancho Santa Fe Home Sale Pending: $2,988,444 for a 4 Bedroom, 5 Bathroom home with an average of 6,369 square feet of living area. The average list price per square foot of the pending house sales is $465.08 per sq. ft.

7 “Contingent” Rancho Santa Fe House Waiting for Short-Sale Approval

(Offers accepted, but the sales are not yet Pending in Escrow)

  • High List Price: 17125 Camino Acampo was originally listed for $3.1 Million, but later reduced to $2.199 Million to attract a short sale offer for this 5 Bedroom, 6 Bathrooms home with 5,830 sq. ft. of living area on ¾ acre in Fairbanks Ranch (Not in the RSF Covenant). The reduced list price represents just $377.19 per sq. ft. of living area. The last market sale was for $2.8 Million in July 2005. If the bank approves this short sale, the price will be approximately 22% or more below the 2005 sale price.
  • Low List Price: 7819 Camino De La Dora in the Cielo neighborhood of RSF (Not in the Covenant) includes 5 Bedrooms, 5 Bathrooms and 5,535 sq. ft. of living area on a 1 ½ acres parcel. This home was originally listed for sale at $2 Million, later drastically reduced to attract a short-sale offer in the range of $1.1 Million to $1.4 Million. The low end of this asking price represents just $198.74 per sq. ft. of living area. The last market sale of this home was for $1.8 Million in February 2005. If the bank approves a short sale at $1.1 Million, the new sale price would be nearly 39% below the February 2005 value.
  • Average Contingent Sale (Short Sale) In Rancho Santa Fe is $1,841,949 for 4 Bedrooms, 5 Bathrooms, and 5,152 sq. ft. of living area. The average price per square foot of living area is $366.08 per sq. ft.

10 Rancho Santa Fe Homes Sold (Closed Escrow) in July 2009

  • Highest Priced Home Sold In Rancho Santa Fe in July 2009: 17610 Los Morros in the Covenant of Rancho Santa Fe. This was an Estate Sale (deceased owner) of a 5 Bedroom, 6 Bathroom house with 4,966 sq. ft. of living area in updated original condition; a fixer-upper by Rancho Santa Fe standards. The house sits on 5.44 acres, in an excellent location just Northwest of the Village of Rancho Santa Fe. The home was originally listed for $4.995 Million, later reduced to $3.999M, and Sold for $3.3 Million after 205 days (almost 7 months) on the market. The sale price represents $664.52 per sq. ft. of living area, but again, this was 5.44 acres in an excellent location.
  • Lowest Priced Home Sold In Rancho Santa Fe In July 2009: 17466 Luna De Miel in Hacienda Santa Fe (Not in the Covenant), is a 5 Bedroom, 5 Bathroom home with 4,125 sq. ft. of living area, including a detached guest house. This was a REO (Real Estate Owned) foreclosure property that was originally listed for $1.7 Million, but later reduced to $1.449 Million. The sale price of $1.350 Million represents $327.27 per sq. ft. of living area. The property sold after 158 days on the market.
  • Average Rancho Santa Fe House Prices In July 2009: List Price $2,512,387, Sold Price $2,255,750 for a house with an average of 4 Bedrooms, 5 Bathrooms, and an average of 5,418 sq. ft. of living area. The average price per square foot of these 10 most recent sales is $465.49 per sq. ft., and the average time on the market was 107 days (3 1/2 Months).

Summary of Rancho Santa Fe Real Estate Trends

With over 9% of the houses in Rancho Santa Fe currently listed for sale, there are a lot of options available for qualified buyers of Rancho Santa Fe luxury homes. There are still buyers for these luxury homes and estates, but the buyers are demanding price concessions. Sellers are reducing their prices in order to attract buyers and complete sales. The average list price of $4,801,134 is substantially above the average list price of $2,988,444 for the 20 Pending Sales, and more than two times higher than the average price of $2,255,750 for the 10 Rancho Santa Fe houses that sold in July 2009. The average price per square foot of the Active Listings is $742.09, while the average price per square foot of the 20 Pending sales is just $465.08, and the average price per square foot of the 10 Rancho Santa Fe homes that sold in July 2009 was remarkably similar at $465.49.

Differences in the quality, locations, and lot sizes of the homes results in a sizable margin of error when calculating values for the current homes for sale in Rancho Santa Fe. However, it seems clear that there will continue to be downward pressure on prices in the area until the inventories shrink and demand increases. With 10 completed sales in July and 20 Pending Sales in August, there is somewhere between 15 months and 2 1/2 years worth of supply of homes for sale in Rancho Santa Fe. By historical standards, more than 6 months of supply is considered a “Buyer’s Market.”

In order for the market for San Diego luxury homes to return to equilibrium, more Buyers must be enticed to enter the market. A loosening of the Jumbo Loan market is needed in order for this to happen. The federal government up to this point has focused its efforts on the entry-level housing market by providing reliable and affordable loan options for homes priced under $700,000. Without a loosening of credit, expect to see significant price declines, and more foreclosures, of luxury homes across the United States.