Third Quarter Review 2005

           The North County Real Estate market should top one billion dollars in sales for 2005. Through the first three quarters we have experienced 660 million dollars in sales with over 1600 closed transactions. In the past few weeks we have noticed a slight change in our market. While buying interest is still strong, their appears to be an increased amount of inventory certainly less upward price pressure. This report will look at our current market dynamics for North San Luis Obispo County.

           North County home sales prices average $450,000. There are not a lot of available homes in this price range but when you reach $600,000 and above there is ample selection for buyers. Sellers have responded to this supply situation by redoing listed prices. We had no price reductions for the month of January but we had 149 price reductions in the last 30 days. The relentless bubble talk has put sellers on notice and sellers are aggressively working to get their price right for the want to sell now. Perhaps the fed jawboning will lead to a softer landing for homes versus stocks circa 2000. New home construction will remain strong well into next year but will thin out until Chandler and Meadowlark come on line in a few years.

           While everyone has been watching interest rates in anticipation of bigger numbers, high-energy costs and Gulf Coast demand have prompted panic buying in construction materials. Cement, lumber, steel and asphalt were already high in price but the aforementioned factors will put a short term surge into these basic materials. Some tariff relief may be in store for these materials but prices remain high. High construction costs can negatively effect development land if price increases in home sales moderate or flatten out. Interest rates remain cheap with little upward movement to date. High construction costs make existing built homes more valuable in a stable environment because placement costs escalate.

           Homes on acreage sales have been very strong up to $700,000. Activity above $700,000 has been spotty in the last four weeks. There are plenty of selections for Clients seeking to buy homes on acreage up to and over a million dollars. Most of the inventory and sales are east of 101 with Westside properties commanding a significant price premium and much higher demand. The average home on acreage price is $717,000. Million dollar properties are selling at about a 3 per month rate but we could see the supply of million dollar homes on acreage exceed 100 by early next year. Supply is long in million dollar properties even today.

           Large acreage parcels are in short supply and listed prices are very aggressive to the upside. There have been some startling sale comparables in large acreage parcels and sellers are bullish in light of short supply. It's a good time to sell 20-80 acre parcels. There is more interest in larger acreage existing vineyards but a huge crop has everyone waiting to see if the market can absorb all of the 2005 fruit. North County continues to receive favorable wine country press and sales are strong at area wineries. Fruit prices are better than last year but still soft in some varietals.

           There is more interest and activity in commercial building and development than ever before. Lots of new properties are being planned, built, and coming on line in North County. Hotels, restaurants and some office product are receiving the most attention. Service retail is very strong especially in food service. Trend setting shops like Alliance and Kahunas are doing well in downtown Paso Robles. Tourism continues to grow and our best years are still way in front of us.

           Is the bubble bursting? We are the market leaders in North County and we continue to see strong demand for people wanting to live in the North County. Supply has been lagging behind demand for years and this situation does not appear to be any different now or in the near future. Interest rates are low by any historical standard. Employment is good in California. Sustained double-digit percentage increases will be harder to maintain but pricing remains firm. We simply do not see anything resembling a bubble in the short term.

Pete Dakin
RE/MAX Parkside Real Estate

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