2006 was a transitional year in North County Real Estate. The slowdown in consumer
demand that started in 2005 came to full force in 2006. Residential single- family homes bore the brunt of the backup while large acreage parcels remain unscathed. North County remains a very attractive place to live. The desirability of our area has not waned and in fact our position is higher than ever before.

The average price of a single-family home in North County fell to $470,000. This decline represents a 15% back up over 2005. Excess inventory created this price pressure and this product overhang killed consumer confidence. New homebuilders adjusted quickly and discounted their offerings putting additional pressure on existing home sales. Deals are happening but it is a price-dominated conversation. With interest rates at such low points, the buying opportunity has been great. It is important to note that there are not a lot of new homes coming on line in Paso Robles. Inventory is still long and price pressure will exist through at least the first two quarters of 2007. There may be no price increases in 2007 but we do not see double digit declines as we experienced in 2006. There are a lot of deals transacting and it is a well-defined market.

Perhaps the most interesting market to observe is the million dollar home sales. There were over 30 homes that sold for at least a million dollars in 2006. The majority of these homes average 1.1-1.3 million dollars sale price. Only a handful of these sales were new product built on speculation. Today we have almost 25 new speculative million-dollar homes offered for sale. There is at least an equal amount of existing used homes up for sale. Because of the high cost of dirt and construction, this market offers the greatest buying opportunity in North County. Most of these speculative homes will be sold in 2007, which will put pricing pressure on the existingmarket. Once these new homes are sold there will be a hiatus before these developers jump back into this pool. This is the most competitive market in North County.

Homes on acreage sales, which included most of the million dollar sales, held up pretty
well in 2006. The average sale price topped $800,000 but again a long supply of new speculative homes on acreage is putting pressure on all sellers. Most of the new speculative product is in the $500,000-$700,000 asking range. Because of the supply of existing homes in this price range the competition for buyers is fierce. Most spec builders are out of the market until the supply situation cleans up. By fall of 2007 we should see where this market is headed.

Large acreage parcels from 5 acres on up are still in strong demand. Westside dirt is
particularly strong. Prices are as strong as they have been with no let up in site. Again inventory
is the story with the reverse effect, limited supply, swinging the tables to the seller. It is a strong sellers market on the Westside and a firm sellers market on the Eastside. It is a great time to sell dirt and if you are a buyer you must be quick and bold to seize the opportunity. The smaller parcels of 1 acre and residential lots are weak because developers are out of the market and already built homes are bargain priced when compared to replacement costs. 2007 should be more of the same for product dirt.

It is the best of times for wine sales and a dismal period for grape pricing on the Eastside.
Westside fruit is still strong with prices at $2000 a ton more or less. Much of the eastside fruit is
being crushed without buyers. This custom crush fruit is targeted for bulk sale to wineries
looking to augment their current commitments. Vineyard sales are happening but sale prices are below replacement cost. Demand for Westside plantable acreage remains firm. The glut of
worldwide bulk wine may soon be coming to an end. Australia’s worst drought in 100 years is rapidly curtailing production from that country. Bulk pricing, in early 2007, will be an indicator
to watch for the future of grape pricing next harvest.

Commercially North County is booming. It’s a user driven market with retail and lodging
at the forefront. All of the new lodging will provide quality affordable lodging opportunity for
urban refugees to visit North County Wine Country. We dominate the food conversation today in
San Luis Obispo County. A destination resort will probably come on line in the next 5-10 years
and that will take North County to a whole new level. A very vibrant and bright commercial
future.

We cannot leave the Real Estate conversation without talking about the Bubble. While
the media drones on about the housing collapse, it pays to look at the numbers. Almost 97% of people who sold Bay Area homes last year got more then they paid for their properties and
almost half at least doubled their money! The median estimated profit for the nine Bay Area
Counties was $315,000 or 88%. Compare this to 1992 when almost 24% of Southern California
homes and condos sold at a loss. Net of a recession, and that is a possibility, this slowdown
should be manageable. The slowdown has yet to feed on itself.

Everything about North County that was good ten years ago is better today. Except the
traffic, which is going to significantly impact our politicians and future development. As
American baby boomers age into their reward year’s, cutting their last college tuition checks or
cashing in on a career of wealth building, they will migrate to quality communities such as North
County. Compared to competitive areas such as Santa Ynez, Carmel Valley, Edna Valley and
Sonoma we are very attractively priced. In fact one could argue that the cost value relationship in the North County is more attractive then ever before. Our wine industry is only going to get stronger. It’s going to get much tougher and much more expensive to build and develop
properties. Real Estate is cyclical, but our area will perform very will into the future.

Pete Dakin
RE/MAX Parkside Real Estate

<top>