In an ordinary year, the $9.7 million sale of the Golden Sand Castle, a private, gated residence on Camino de La Costa overlooking Windansea Beach in La Jolla, might have been something to marvel at.
But these days, when a beachfront home in La Jolla has never been such a hot , and limited , commodity, and when, in the words of one local broker, “people with money want more than anything to be on the beach,” such sales are rather common, despite the fact that only a fraction of San Diegans can afford such a purchase.
Instead, homebuyers in this extremely selective market come from across the country and around the world.
And, the rush is on to snap up properties along what local real estate brokers call La Jolla’s Gold Coast.
San Diego’s oceanfront is becoming the destination of choice for the country’s second- and third-home buyers, seeking a family vacation or retirement home in some cases, and an unmatched return on a rapidly appreciating asset class, in others. Home prices at the high end reflect the surge in demand.
“The statistics are startling,” said Kate Adams, a broker in the La Jolla Village office of Prudential California Realty (the largest franchisee of the Prudential Real Estate Network), who has been selling homes in La Jolla since 1979.
In 2004, the number of homes priced upward of $5 million that hit the market and sold in La Jolla jumped 250 percent, from six properties in 2003 to 21 in 2004. In the first four weeks of 2005, four listed homes priced from $5.9 million to $8.8 million are already in escrow, which is higher than the average annual sale of homes of more than $5 million from 1997 through 1999, Adams said.
There were 221 sales of homes priced northward of $5 million in California during 2004, according to La Jolla-based DataQuick Information Systems, Inc., a real estate information provider. This gave La Jolla a share of almost 10 percent of this market in California, while in terms of total acreage, La Jolla accounts for 0.006 percent of land in the state.
Prudential brokers Maxine and Marti Gellens, who sold the highest-listed-priced home in San Diego County in 2004 , a 25,000-square-foot, 12-bedroom oceanfront home in La Jolla Farms for $22.7 million , pointed out that more than 75 percent of the $5 million-plus homes sold last year were oceanfront properties.
In La Jolla, as of December, the median price of a home, which includes single-family homes and condos, was $850,750, up 25 percent from the same month a year ago, according to the California Association of Realtors. This is also 70 percent higher than the San Diego County median home price, which is $500,000, according to the same group.
The fact that the median home price is high in La Jolla may come as no surprise (although it is 16 percent higher than in Carlsbad and 15 percent higher than in Solana Beach, both of which offer oceanfront real estate).
But, when a report from the National Association of Homebuilders and Wells Fargo Bank in January said that San Diego County, as of the end of 2004, had one of the lowest affordability levels in the country at 5.4 percent , meaning that 5.4 percent of county residents earning the median family income of $63,400 can afford to own their own homes , it adds shock value to this marked increase in the volume of multimillion-dollar transactions.
The sale of the Golden Sand Castle in November is notable for reasons other than its $9.7 million price tag. First, the beachfront property was owned and
occu & #173;pied by Randolph Hearst, son of the newspaper mogul William Randolph Hearst, less than eight years before his daughter, Patty Hearst, was kidnapped from her Berkeley apartment.
Besides its historical significance, the sale of the home, which closed on Nov. 30, also sheds light on the evolving trends among buyers in the high-end luxury home market in La Jolla, as well as other areas of San Diego County with direct oceanfront access.
Judy Woodhead, a broker at Coldwell Banker’s regional office covering La Jolla, Del Mar and Solana Beach, sold four homes at prices greater than $5 million last year and, along with her partner, Stella Durham, represented the buyers in the sale of the Hearst beachfront home.
The fact that they are a couple in their 50s who live in Dallas, do business in Los Angeles and are buying the property as a vacation home and an investment, using cash to make the nearly $10 million purchase, places them in a category with a majority of the buyers in this particular market, Woodhead said.
According to Charles Ahern, who has sold luxury properties in Coronado for the last six years, “What we are seeing is good demand from people that can actually afford to buy right now.
“They are mostly small-business owners, or self-made professionals, approaching 60 years of age. They really want a second home, or a vacation home, that they can use for themselves, their children and their grandchildren,” he added.
In 2004, Ahern sold 25 homes at an average price of $900,000, including two homes for more than $2 million.
“These are very demanding, very successful businessmen coming in here and buying,” he said. “They know what they’re doing. They do their homework on the Internet and they know what they want.
“And an awful lot of them come from Phoenix, Tucson and Scottsdale,” Ahern added.
Gellens said that among the buyers she has dealt with in the past year, the best represented are those from Texas and Arizona, by far.
Another characteristic of recent buyers is that they are more knowledgeable about the local market.
“If they are from out of state, they subscribe to the weekly newspaper and many of them have friends in San Diego already, so they come into the market with their own network,” said Ahern.
The other group of buyers consists of San Diegans with primary residences in Rancho Santa Fe, Del Mar or La Jolla who are now searching for oceanfront property to serve as second, third and, in some cases, fourth homes, according to Ahern and Adams.
The $5 million-plus luxury home market in areas such as La Jolla has benefited from the confluence of two factors: the increase in the number of homebuyers who are seeking to take advantage of expected price appreciation to increase their return on investment, and the availability of an array of financial products to help finance these purchases, brokers said.
Across the state, the number of homebuyers who indicated that they bought primarily for investment and tax considerations increased to a historic high of 16.2 percent in 2004, surpassing all previous records, according to the 2004-05 State of the Housing Market report released in January by the California Association of Realtors.
The report also said that this trend is likely to continue, “driven largely by older boomer generation repeat buyers who are diversifying their portfolios, acquiring vacation homes and planning for retirement.”
When it comes to making the purchase, most buyers in this category are opting either to pay cash or to borrow using a five-year, interest-only mortgage loan.
According to Ahern, “Most of the people that we’ve been dealing with are, on average, utilizing shorter-term, interest-only loans, where the interest rate is set for a period ranging from one year to 10 years.”
These loans can sometimes provide an easier means of repayment than that offered by a traditional fixed-rate loan. With this more flexible structure, the loan is paid off with an initiation period of level payments , in this case lasting five years , followed by a period of refinancing or loan payoff. This provides the benefit of a lower initial rate with steady monthly payments for an extended period of time.
The California Association of Realtors reported that the share of homebuyers using traditional fixed-rate mortgage financing dropped from nearly 83 percent in 2003 to 63 percent in 2004.
Ahern said he knows some owners who have rented out their homes and used rental income to make monthly interest payments. When the loan comes due after five years, the owners refinance, taking advantage of the appreciation in local home prices and the greater value of their home.
Since selling prices on beachfront properties throughout San Diego County do not appear to be leveling off, these investors-turned-homeowners are reaping rewards.
Coldwell Banker’s Woodhead predicted that a Del Mar home she sold for $5 million one year ago would easily sell for $6.7 million today.
As of Jan. 30, there were 18 properties for sale with active listings in La Jolla for more than $5 million, seven of which have ocean views, according to Adams of Prudential.
And while nobody knows for certain where the market will go, one thing that’s safe to say is that “beachfront property is a limited commodity and there are lots of people out there with money who will pay to have it,” Woodhead said.