What's the Worry about Westside Los Angeles Real Estate?

Last week we took a look at market trends on the corridor between West Hollywood and Downtown Los Angeles. This week we're taking a look at market trends in the chunk of Los Angeles Westside, the highest priced markets in the city between Beverly Hills and the Beach.

The selected neighborhoods included Beverly Hills, Beverly Hills Post Office, Brentwood, Pacific Palisades, Santa Monica, Venice and Westwood - Century City.

There is currently a 3.2 months supply of inventory of homes priced under $1 million, the lowest level in more than two years. Under these conditions, buyers are forced to view properties and write contracts as they compete with other buyers who are also trying to get into these high-barrier-to-entry neighborhoods.

What is driving this decline in inventory? Record low interests rates, reduced prices, a higher supply of distressed properties, and a sentiment that the market is in the process of bottoming-out.

But the sales in these neighborhoods under $1 million account for only 17% of the market. What's happening in the market for houses selling for more than $1 million?

Current inventory is about 7 months, slightly below what it was two years ago. After a gut-wrenching decline in activity during the worst part of the financial crisis when inventory exploded to two or three years worth, we're now returning to normal levels of selling.

The big picture is that the home market collapsed and is recovering and now looks a lot like it did two years ago. The median selling price in these neighborhoods last month was $1,645,000 -- a scant $3,000 above the median selling price in September 2007.

With so much negative sentiment about residential real estate, the California economy, etc., it's surprising to see that the real estate fundamentals in high-end neighborhoods of Los Angeles remain strong.