Desert real estate offers a land of opportunity — and word is spreading fast!
Phil Kaplan recalls what Vista Las Palmas in Palm Springs looked like in 1988 when his father bought an Alexander home on Regal Drive: “It was an area of elderly people, mostly living here part time. Many homes were in dire need of repair, and the landscaping was unkempt.”
Fast-forward to 2004: Vista Las Palmas attracts diverse homeowners, the neighborhood has never looked better, and home prices have reached stratospheric levels.
Some of the highest per-square-foot prices in the desert occur in Vista Las Palmas. A brilliantly renovated 2,100-square-foot Alexander on a corner lot offers “an artful midcentury mood” at $1,279,000 or $609 per square foot. A 1,600-square-foot fixer-upper lists at $675,000, $421 per square foot. A recent bidding joust for a small, three-bedroom fixer-upper — listed at $599,000 — brought six offers in three days and ended in a deal $11,000 above the asking price.
Sale prices valleywide continue to soar. Palm Springs and Palm Desert enjoyed 26.1 percent increases in sales prices in the fourth quarter of 2003, compared to 2002’s fourth quarter, according to Real Data Strategies. La Quinta outpaced the pack with sale prices increasing 29.6 percent. All this comes on top of a brisk 2002, when reports from Dataquick and The Concord Group showed that Palm Springs Valley accounted for 35.2 percent of all Southern California home resales priced above $400,000.
In this market, Kaplan could list his home today for more than $800,000. He knows what his dad would say at the profit he stands to net. “I told you to hold onto it … that someday it would be a piece of gold,” Kaplan says.
Given the recent frenetic sales activity, it seems like residents mint gold in the now perfectly manicured streets of Vista Las Palmas. Located between Old Las Palmas and Mt. San Jacinto, Vista Las Palmas now enjoys equal billing with upper-crust Old Las Palmas. “The distinction between the two neighborhoods is blurred,” observes Sven Vennen of DBL Realtors, who with Blair Alexander specializes in Las Palmas. Vennen says the 400-plus homes in Vista Las Palmas have enjoyed a 25 percent price increase over the last year.
The area’s radical transformation is due in part to “equity immigrants,” a term coined by Roger Dawson, co-author of The Weekend Millionaire’s Secret to Investing in Real Estate (McGraw Hill), to describe buyers who’ve sold properties in Los Angeles and Orange County and poured their hefty profits into desert-home bargains. The area’s status has grown so much that one buyer from San Francisco felt if he was going to buy in Palm Springs, “it had to be in Las Palmas.” Windemere Realtor Stuart Tsukamoto confirms this sentiment. “I’ve actually heard people from L.A. say, ‘If you’re not in Las Palmas, you might as well be in Riverside.’”
In addition to new residents moving into Las Palmas, many Palm Springs residents are moving up and around the desert cities. One Northern California couple that has lived here part time for six years sold their 2,700-square-foot Movie Colony home for about $1 million (they bought it for $410,000). They’re putting their profits into a $2.1 million Las Palmas estate.
With low interest rates and prices rising monthly, scarce inventory has Realtors and buyers scrambling. “In 23 years working in this market, I’ve never seen anything like this before,” says Realtor Louise Hampton. “In Palm Springs, it’s hard to find almost anything in the $500,000-$600,000 range, she says. That’s why Hampton’s client, Los Angeles designer Michael Hamilton, made an offer very close to the asking price of $500,000 on a three-bedroom condo in a desirable south end gated development. “It was the first thing Louise showed me, and I fell in love with it. I knew what the market was doing, so I went ahead with it,” Hamilton says.
Shari and Marc Stewart, who after 20 years in Palm Springs, surprised themselves, family, and friends by buying a 3,900-square-foot home in Versailles — a gated community in Rancho Mirage. “I went looking for my son and fell in love with the model. We decided it would be fun to have a change, and suddenly having a brand new house really appealed to us,” Stewart says.
Peter Solomon, CEO of Regency Homes, a well-respected local builder, releases new phases at Versailles as fast as he can. Solomon doesn’t advertise or pay broker commissions, but he’s already sold more than 165 of the projected 340 homes. “We’re opening one phase right after another,” says Solomon. One model that started at $310,000 a year ago now sells for $370,000. About 70 percent of his buyers are local.
It’s obvious that this market is no longer defined as a second-home market. “We are now building and selling more homes for working families than the retirement crowd,” says Ed Kibbey, executive director of the Building Industry Association-Desert Chapter. In December 2003, Rancho Mirage’s building permit valuations reached almost $34 million while Palm Desert’s rang in at $19.4 million.
Homebuilding giant Toll Brothers has responded to the demand by changing the type of homes they build. “The product we build now is totally different than the older communities that we built as second homes,” explains Gary Lemon, Toll Brothers vice president and regional manager. Currently it has three new projects under construction: Mira Vista in Mission Hills, Mountain View Country Club in La Quinta, and Muirfield at PGA West in La Quinta. “We’re still building communities with plenty of amenities, but now they serve as primary residences.”
David Stewart, 27, and his wife Meredith, 28, moved here last year from Los Angeles for several reasons. Stewart, who grew up in Palm Springs, says “quality of life, commuting time, and real estate prices were key factors in our decision to move back here.” They bought a four-bedroom, three-bath home in a new development in Rancho Mirage. “We would have had to pay double for just a two-bedroom condo in West L.A.,” he says. “Or buy in Lancaster or the Santa Clarita Valley for something comparable.”
All the “house farms” sprouting in Rancho Mirage and north Palm Desert have caused some residents to seek the more open spaces of La Quinta. That’s what Rob and Karen Knox, formerly of Palm Desert, did last November. They sold their north Palm Desert home for $620,000 and bought a similarly priced home in La Quinta’s Painted Cove. “It’s a different atmosphere out here. It really feels more remote and secluded than Palm Desert,” Knox says.
All this activity enticed Coldwell Banker Residential Brokerage to acquire the five offices of Fred Sands Desert Realty last December. “The desert has grown so much in size, volume, and sales price that we felt this was the right market for us,” says Scott Gibson, president of the company’s Greater Los Angeles region.
Red-hot markets like this one always lure more people to quit their day jobs and get a real estate license. According to Greg Berkemer, executive director of the California Desert Association of Realtors, six years ago there were only 750 active Realtors in his association. Today, close to 2,300 play the game.
Desert Hot Springs, the next frontier?
In March, Palm Springs Desert Museum’s Architecture & Design Council sponsored a symposium and tour titled “Desert Edge: Architecture from Desert Hot Springs to the Salton Sea” that included a stop at Desert Hot Springs Motel, designed by famed modernist John Lautner.
DHS continues to gain attention as one of the last outposts of affordable housing within close proximity to Palm Springs. Both large and small developers are snapping up acreage from the mountains to Interstate 10. They’re building everything from single-family homes priced from the low $100,000s to $300,000 modular, steel-and-glass homes. RE/MAX Real Estate Consultants has opened a 20-agent office on Palm Drive, the burgeoning city’s main thoroughfare.
Patrick Seabol of Modernist Homes plans to begin construction soon on a gated development on the south side. “Since there is nothing affordable left in Palm Springs, Desert Hot Springs is the next logical location for people to build and buy in.” The 50-unit project will be a combination of condos and townhomes ranging in size from 1,200 to 1,500 square feet, featuring Seabol’s signature steel-and-glass, single-family modular homes with prices starting in the high $200,000s and topping out up in the low $300,000s.
Large builders like Century Vintage Homes also bet heavily on DHS. “We think Desert Hot Springs is a sleeper,” explains Tony Scimia, the company’s senior vice president of sales and marketing. The company recently broke ground on a 436-home gated development in the foothills. Priced from the low $200,000s to the $300,000s, more than 100 homes have already been reserved.
Despite recent increases in land prices, there’s still plenty of reasonably priced “dirt” left. For example, 10,000-square-foot lots in DHS sold for $15,000 to $25,000 six months ago. Today those lots run $30,000 to $50,000. Developers still think DHS is a bargain, especially when compared to Palm Springs, Rancho Mirage, and Palm Desert. A 12,000-square-foot lot in Palm Springs recently sold for $180,000. Seabol can buy an acre in DHS for $80,000 to $100,000. On top of attractive pricing, Seabol thinks the results of DHS’s gentrification will be seen over the next five years.
The Experts Speak
Long known as a place where homebuyers get a lot of house for the money, rapidly rising prices have caused the desert’s attractive affordability rating to slide to 16 percent this past January from 22 percent in January 2003, according to the California Desert Association of Realtors. Could this be a warning signal that activity will decrease? Palm Springs Life asked industry experts to assess the market.
Michael Bazadarich, Senior Economist, UCLA Anderson Forecast
The price phenomenon occurring in Coachella Valley is happening across Southern California. That’s why the future of the desert’s residential prices is tied to prices around the region. I don’t expect to see the 20 percent price gains this year like we did in 2003. They’ll probably level off at the 4 to 5 percent range.
Al Gobar, Founder, Alfred Gobar Associates
This market is not a bubble scenario about to burst. When interest rates rise, I don’t think you’ll continue to see 20 percent price increases. Prices can’t continue to compound exponentially forever or it would take the entire GNP to buy a house. Eventually, I see yearly increases of 3 to 4 percent.
Marta Borsanyi, Principal, The Concord Group
I see prices increasing at about half the pace currently occurring. The volume will drop somewhat, but won’t go into slumber. Baby boomers retiring and empty nesters will drive this market for primary housing.
Norm Bour, Host, The Real Estate and Finance Hour, KLSX
After 25 years in the business, my gut says “bubble” but all the economists and experts say no. With bubbles, they are always indicators of one on the horizon. And we’re not seeing that right now.