LOS ANGELES—Condo prices in Downtown Los Angeles dropped dramatically last month making for a very poor start to the year, according to the latest the Mark Co. Price Index. Prices were down an average of 13% year over year and more then $100 per square foot, coming in at an average of $701 as opposed to $803 in December.

“January is always the weakest month of the year,” Erin Kennelly, director of research at the Mark Co., tells GlobeSt.com. “I think it was especially weak this year because the newest, most expensive units in Downtown Los Angeles are only available for presales and will not close escrow until later this year. I think prices will begin to recover in February or March. Another surge in prices is likely when Metropolis begins to close sales and those prices become public record.”

There is also a significant delta between resale condo prices and new construction prices, which is adding to the volatility. “There is a huge gulf between the price of recently built resales and the new construction sales happening at Metropolis,” says Kennelly. “With the exception of The Ritz-Carlton at L.A. LIVE, most condominiums built during the last cycle trade for approximately $600-$700 per square foot, with upper floor units in nicer developments ranging somewhat higher. Meanwhile, advertised prices for Metropolis average closer to $1,000 or $1,100 per square foot. There should be a premium for new developments such as Metropolis, but the difference shouldn't be as high as it is now. I expect that gap to narrow, but whether that happens by increases in resale prices or decreases in new construction prices is difficult to predict. The result is confusion in the market and increased price volatility while this gets sorted out.”

The decline in pricing came mainly from new construction product, with the average resale price declining only 2% for the month and actually increased 7% year over year. Kennelly says that condo developers should be concerned about the volatility in pricing, especially considering that even more new supply will come online later this year with Ten50 and Oceanwide Plaza. “With such a large price difference between new and resale product, successful developers will be the ones who cultivate an appealing brand and make a strong case for the premium buyers pay for new construction,” adds Kennelly. “With increasing competition and shifting market conditions, there will be winners and losers. New developments that fail to resonate with buyers will have to compete with the much less expensive resale inventory, while developments that offer a compelling product and a stylish brand will set themselves apart.”

Condo pricing in the downtown market became increasingly volatile in the second half of 2015. In December, new construction values dropped 2% after peaking in November with the opening of the Metropolis Tower I and II, which currently makes up the majority of the new construction stock.

LOS ANGELES—Condo prices in Downtown Los Angeles dropped dramatically last month making for a very poor start to the year, according to the latest the Mark Co. Price Index. Prices were down an average of 13% year over year and more then $100 per square foot, coming in at an average of $701 as opposed to $803 in December.

“January is always the weakest month of the year,” Erin Kennelly, director of research at the Mark Co., tells GlobeSt.com. “I think it was especially weak this year because the newest, most expensive units in Downtown Los Angeles are only available for presales and will not close escrow until later this year. I think prices will begin to recover in February or March. Another surge in prices is likely when Metropolis begins to close sales and those prices become public record.”

There is also a significant delta between resale condo prices and new construction prices, which is adding to the volatility. “There is a huge gulf between the price of recently built resales and the new construction sales happening at Metropolis,” says Kennelly. “With the exception of The Ritz-Carlton at L.A. LIVE, most condominiums built during the last cycle trade for approximately $600-$700 per square foot, with upper floor units in nicer developments ranging somewhat higher. Meanwhile, advertised prices for Metropolis average closer to $1,000 or $1,100 per square foot. There should be a premium for new developments such as Metropolis, but the difference shouldn't be as high as it is now. I expect that gap to narrow, but whether that happens by increases in resale prices or decreases in new construction prices is difficult to predict. The result is confusion in the market and increased price volatility while this gets sorted out.”

The decline in pricing came mainly from new construction product, with the average resale price declining only 2% for the month and actually increased 7% year over year. Kennelly says that condo developers should be concerned about the volatility in pricing, especially considering that even more new supply will come online later this year with Ten50 and Oceanwide Plaza. “With such a large price difference between new and resale product, successful developers will be the ones who cultivate an appealing brand and make a strong case for the premium buyers pay for new construction,” adds Kennelly. “With increasing competition and shifting market conditions, there will be winners and losers. New developments that fail to resonate with buyers will have to compete with the much less expensive resale inventory, while developments that offer a compelling product and a stylish brand will set themselves apart.”

Condo pricing in the downtown market became increasingly volatile in the second half of 2015. In December, new construction values dropped 2% after peaking in November with the opening of the Metropolis Tower I and II, which currently makes up the majority of the new construction stock.