First Republic Bank on Monday reported that luxury home values dropped in Los Angeles, San Diego and San Francisco in the first quarter of 2011 from their levels during the prior quarter.

According to the First Republic Prestige Home Index, Los Angeles area values dipped 0.5% from the fourth quarter of 2010 and 0.9% from a year earlier, with the average luxury home in Los Angeles now worth $1.96 million. San Diego area values fell 4.6% from the fourth quarter and decreased 5.1% year-over-year to $1.63 million. San Francisco Bay Area values lost 4.3% from the fourth quarter and were 1.9% lower than a year ealier at $2.49 million.

"The market gains of the fourth quarter of 2010 reversed in the first quarter of this year," said Katherine August-deWilde, president and COO of First Republic Bank. "Prices fell as sales activity declined."

In Los Angeles, after rising in the final two quarters of 2010, luxury home prices fell in all segments but the ultra high end and beach communities.

"In Los Angeles, there have been 20 closed home sales over $10 million year-to-date," said Lisa Platt of Coldwell Banker in Beverly Hills. "That was the same number as last year at this time. There are a lot of all-cash buyers. People are also trying to capitalize on lower interest rates."

Other agents are seeing similar results. "Most of the largest transactions are all cash or almost all cash," said Bennett Carr of Sotheby's International Realty in Beverly Hills. "They are buying more house and a better house at a lower price. ... This is really a two-part market. The very best properties are holding their value very well. To the extent a property isn't the best product, prices are softening.

In ocean communities, quality neighborhoods were active, agents reported. "Demand for property has outstripped the inventory, even though inventory is higher," said John Capellaro of Coldwell Banker in Manhattan Beach. "When the right kind of property comes onto the market, there are often multiple offers."

In San Diego, where values alse were up in last year's fourth quarter, they dropped in the first quarter of this year to their lowest point since the first quarter of 2004. The average price of a luxury home was then $1.63 million, the Bank said.

Agents in San Diego cited soft demand. "We still have a lot of inventory in the upper price points," said Michael Taylor of Prudential California Realty in Rancho Santa Fe. "Whenever that happens, you have downward pressure. The good news is that we're a whole lot closer to inventory equilibrium. Under $3 million, we're close to equilibrium. Above $4 million, we're still not there yet."

Maxine Gellens of Prudential California Realty in La Jolla agreed. "The market over $3 million is very slow. There was only one sale in La Jolla over the past eight months. People seem to be scaling down, no matter who they are."

San Francisco Bay Area luxury values in the first quarter fell to their lowest point since the first quarter of 2004, when the average price of a luxury home was $2.39 million. "We weren't surprised that the first quarter was sleepy," said Stephen Gomez of Gomez & Patton Real Estate in San Francisco. "First quarter sales reflected the price discounting that took place in the second half of 2010. Normally, it's a sellers' market in San Francisco, but we had a buyers' market in final two quarters of last year. Now we're starting to see the window to the buyer's market close."

On the tech-heavy San Francisco Peninsula, agents report business is picking up. "I see tons of buyers with money, but inventory is the issue more than anything else," said Geoffrey Nelson of McGuire Real Estate in Burlingame. "We recently had three sales over $5 million. It is probably a better market than sellers think."

In the East Bay, buyers were also hesitant to make offers. "There are actually a few buyers out there, but they are unwilling to commit," said Sharon Dare of J. Rockcliff Realtors in Danville. "That drags down prices. If someone really does want to sell a home, the price is typically lowered."

The Banks index is based on a statistical model customized to measure changes in homes valued at more than $1 million in key California urban markets. Those homes are usually characterized as having 3,000 to 6,000 square feet, three to six bedrooms, and three to six bathrooms. San Francisco Bay Area properties include a cross-section of luxury homes in Alamo, Atherton, Belvedere, Danville, Healdsburg, Hillsborough, Lafayette, Los Altos, Los Gatos, Mill Valley, Moraga, Orinda, Palo Alto, Piedmont, Portola Valley, Ross, St. Helena, San Francisco, Saratoga, Sonoma, Tiburon and Woodside. Properties in Los Angeles represent a cross-section of luxury homes in Arcadia, Beverly Hills, Calabasas, La Caada Flintridge, Encino, Los Angeles, Malibu, Marina del Rey, North Hollywood, Pacific Palisades, Pasadena, Playa del Rey, Santa Monica, Studio City and the West Los Angeles enclaves of Bel Air, Brentwood and Westwood. San Diego properties represent a cross-section of luxury homes in Carlsbad, Coronado, Del Mar, Encinitas, La Jolla, La Mesa, Poway, Rancho Santa Fe, San Diego and Solana Beach.

The Index is produced in collaboration with Fiserv CSW Inc. More information is available on the Bank's website at,.

Learn more about markets featured in this article: Los Angeles, CA, San Francisco, CA, San Diego, CA.