Even in the Most Expensive Zip Codes, Prices Are Down

Home values in enclaves such as Beverly Hills and Greenwich have slipped, but houses are still far from a bargain for most buyers

The 90210 Zip Code might be the nation's most famous, but La Jolla, Calif., the San Diego community perched above the Pacific Ocean, now has America's highest-priced homes, according to Coldwell Banker's 2008 Home Price Comparison Index released on Sept. 9.

The report compares average home values for select 2,200-square-foot single-family homes with four bedrooms, 2.5 baths, a family room, and a two-car garage. The average price for such a home in La Jolla, Calif., is $1.842 million, a 2% increase from a year ago. Coming in second was Greenwich, Conn., where the average home price, $1.787 million, is down 11% from last year. But California, despite its slumping real estate, dominates the list. Beverly Hills, last year's most expensive Zip, was No. 3 this year. Eight of the top 10 most expensive places were in California.

The Midwest, on the other hand, accounted for 8 of the 10 most affordable communities. This year's most affordable place was Sioux City, Iowa, where the average surveyed house costs $133,000 -- about $1.7 million less than a similar place would cost in La Jolla.

Preference for the Coasts

"California has dominated the list as long as I can remember," says Jim Gillespie, president and CEO of Coldwell Banker Real Estate, a division of Realogy in Parsippany, N.J., which has been producing the home price comparison index for 21 years. "The coastlines are always going to be desirable."

It's not surprising that the most expensive places are also well known. In tough economic times, wealthy people tend to invest in established communities where home prices tend to remain strong over time, says Rick Goodwin, publisher of Unique Homes, a magazine and Web site about luxury properties.

"If you're going to put $20 million in a house, you're going to want to make sure it's a good place," Goodwin says. "Just because you've got a lot of money, it doesn't mean you're less cautious."

But home prices -- even in established communities -- have fallen this year. The prices dropped 11% in Greenwich, Conn., and 18% in Beverly Hills, according to the Coldwell index, which takes a sampling of prices for homes of similar size in selected middle-management neighborhoods.

Drew Peterson, a Realtor at Weichert Capital Properties & Estates in Greenwich, says few properties there sell for less than $500,000. One of his clients recently accepted an offer for one of the least expensive houses on the market, a 1,000-square-foot house on 0.14 acres listed for $495,000. Raw land in Greenwich goes for $1.2 million to $2.2 million an acre, so investors often buy small houses just to tear them down and put up larger ones, he says.

Global City

Greenwich's best deals are now in new construction because builders are eager to avoid paying heating costs for empty houses this winter, he says.

"Historically, people have always paid a premium to live in Greenwich," Peterson says. "Now we have a lot of buyers from overseas because of the weak dollar. It is becoming a global city where you can still see magnificent homes behind gates, as well as small homes with picket fences."

Marti Gellens, an agent with Prudential California Realty in La Jolla, says the market was slow this summer, but has started to pick up. She says the warm weather keeps wealthy buyers interested in San Diego. Smartphones and laptops have made it easy for business people to work from places where they really want to live, she says.

"We've had a big influx of people who moved their business here -- entrepreneurs and individuals with their own companies or hedge funds," Gellens says.

If you think La Jolla is too expensive, it's a bargain compared with Dubai, which topped Coldwell Banker's list of the most expensive foreign markets. Homes in Dubai averaged $2.45 million, 33% more than similar houses in La Jolla. Fifteen markets outside the U.S. had average homes above $1 million, including Bucharest and Madrid. The most affordable foreign market surveyed was Quito, Ecuador, where the average home of similar size cost $96,750.

The 10 Most Expensive Real Estate Markets in the U.S.

La Jolla - Getty Images

1. La Jolla, Calif.
2008 Avg. Price: $1.842 million
Annual price change: -2%

2. Greenwich, Conn.
2008 Avg. Price: $1.787 million
Annual price change: -11%

3. Beverly Hills, Calif.
2008 Avg. Price: $1.777 million
Annual price change: -19%

4. Palo Alto, Calif.
2008 Avg. Price: $1.741 million
Annual price change: 4%

Santa Monica - Getty Images

5. Santa Monica, Calif.
2008 Avg. Price: $1.653 million
Annual price change: -7%

6. Santa Barbara, Calif.
2008 Avg. Price: $1.6 million
Annual price change: 0%

7. Newport Beach, Calif.
2008 Avg. Price: $1.546 million
Annual price change: -4%

8. San Francisco
2008 Avg. Price: $1,513 million
Annual price change: 4%

Boston - Getty Images

9. Boston
2008 Avg. Price: $1.494 million
Annual price change: 8%

10. San Mateo, Calif.
2008 Avg. Price: $1.366 million
Annual price change: -9%

View a slideshow of the nation's most expensive real estate markets.

Gopal writes about real estate for BusinessWeek.com in New York.