First Quarter 2003

A Changing Market

     A changing Real Estate Market can take months to reveal its direction. There are no national indexes, such as the New York Stock Exchange, to chronicle daily status. Further complicating the picture can be the disparity between product types, such as vineyard sales and home sales, in the North County Market. The first quarter Real Estate sales numbers point to some interesting overall trends within the North County.

     The overall number of actual property sales dropped by 20%, as compared to First Quarter 2002. Sales dollar volume increased, however, by 9% to 98,000.000 in the same period. A whopping 31% increase in average North County sales price accounted for this sales volume increase.

     Residential single-family homes account for almost 40% of the North County sales market. The number of residential home sales dipped slightly with last years comparable number but the dollar volume leaped up 20% due to the almost 25% increase in home values on a year to year basis. The average price of the North County home now exceeds $307,000.

     Homes on acreage sales numbers dropped almost 36% in transactions and 28% in dollar volume. Average homes on acreage pricing climbed 15%, to $477,000, despite this fall off in activity. High-end properties, priced at $600,000 and up, have been slowing for the last six months. Inventory is building at the high end and seller expectations remain high. High quality properties and value attract buyers. The Westside is still very active. This market, homes on acreage, is getting very crowded very fast from a sellers perspective. Buyers have more choices and there are a number of quality properties available today.

     Buyer interest in land, especially parcels 10 acres and below, remains strong. Asking prices for small parcels have jumped 30% over last year's and buyers are having a hard time making this jump. Land is hard to finance and the bigger asking prices are excluding candidate buyers. If buyer activity drops, in this category, we will see a significant uptick in the absorption time for land sales. Larger parcels are still generating activity but buyers are very selective. A soft grape market has reduced overall buyer activity in large parcels.

     The California wine industry is in its worst slump in ten years. A leading publicly held winery executive commented that the industry is in the most competitive environment in the past four decades. Times are tough for many growers and many wineries. We are seeing wine prices drop, which will help increase consumption and thereby heal the industry. Many wineries and growers are continuing to prosper in niche markets. Our Central Coast is fortunate to have many of these success stories. Lower grape prices will lead to lower vineyard sale prices. The depth and duration of this cycle is unknown. Within the next 3-6 months we will see vineyard sale numbers reflective of the current market.

     No one knows what the future will bring. We are now entering prime time selling season. Sales velocity, the number of actual transactions, is a precursor for pricing. A rising number of transactions allows for upward pricing mobility. Falling or flattening velocity will create stable or weaker pricing. Velocity is the first casualty in a market. Our Real Estate market has held up under the drumbeats of war, state deficits, rising unemployment, and general media bad news. We are fortunate to be in an area with great desirability. Long term our future is bright.

     The residential single-family market, up to $500,000, is still moving along. This market segment is hypersensitive to interest rates. The war has yet to dampen this market. Supply and demand are in balance. Higher end properties, vineyards and land are more competitive and less sensitive to interest rates. The stock market has a material effect on the aforementioned properties. Things are changing. That much is certain. We believe things are better than they seem but challenges lie ahead in the coming months. Across the board it will be a more competitive market for sellers in the short term.