North County Real Estate Review

           Our North County Real Estate market started changing in July 2005. Prior to that date we had five plus years of uninterrupted price increases and demand outstripping supply. We had a billion dollar sales market. That's all over for the time being. We still have an extraordinarily strong market with over 600 million dollars in gross sales through the third quarter of 2006. Our local economy is vibrant with hotels, wineries and retail developments in high gear. Interest rates are generously priced. It is the inventory of unsold product that is controlling today's market.
           Sales of residential single-family homes have dropped by about 40% and prices paid have dropped 10% over 2005 high points. The supply of listed homes for sale has quadrupled over year-to-year comparisons. Price weakness started in the $500,000 range and has spread throughout the entire category of residential homes. It's a buyers market for residential single-family homes and this situation, due to large inventory, will remain throughout 2006 and well into 2007.
           Perhaps the primary reason for the drop in demand for residential homes is the cannibalization factor. Record low interest rates and a sound economy created a monster demand for homes. Some people traded up three times in the last few years. A new class of investor, the "flipper", jumped in with both feet. Future sales were done way ahead of schedule. The investor is gone and the trade up folks have done traded up. Now it's back to the basics of structural buying and selling.
           Homes on acreage stayed stronger longer than residential single family but the inventory situation has created a buyers market in this category as well. The average sale price to date, of the home on acreage, is $824,000. This number is a record high number but price sensitivity now exists throughout this entire category. Between one and two million dollars there are over 90 homes on acreage available for sale and only 26 homes in this category have closed escrow this year. Of course, only 12 homes in this category sold in 2004 so weakness is a relative term. At the peak there was one of these million dollar homes selling per week. It is also interesting to note that 40% of the million dollar home sales happened in Atascadero.
           Dirt is different. Residential lots for sale have dropped 20% or more in price. Developers are no longer snapping up parcels, for spec homes, so demand is weak and user oriented. Inventory is thin in this category so this lot supply situation will actually go away in relatively short order. Large acreage parcels, 20 acres on up, are still in strong demand and limited supply. Prices are still strong and we do not see this changing in the short term. Buyers would rather pay top dollar for vacant dirt then deal with a dated house on acreage.
           The wine grape vineyard business is always interesting. Eastside vineyards are in long supply with pricing in the $27,000 an acre range. Demand for east side fruit is still weak and grape pricing low. Westside fruit demand is high with vineyard pricing very strong. Wine sales are good. There will be more vineyards for sale in the coming months. These east side vineyards are selling for less than replacement value.
           Net of a recession or some economic weakness, the inventory situation in North County should clean up in the next year or so. New homes are being aggressively priced today but there does not appear to be any large supply of new homes poised to hit the market in the next couple of years. Some of the million dollar home sellers will pull their property off the market until they can "get their price". These discretionary sellers can wait out the years. It will certainly take some time for the million-dollar market to firm up again.
           Real Estate is a local market. Our local supply situation, while heavy today, is manageable over the next couple of years. It's always going to be hard to build in North County, which means we have built in value via exclusivity. Our Central Coast location and ambiance is desirable to people with wealth. Over the years we will see a destination resort in North
           County and commercial air service. Periodically Real Estate markets get ahead of themselves and behind themselves. These markets put a premium on knowledge, exposure, information and leadership. Challenges certainly exist for sellers but these challenges are manageable. Buyers can be grateful they are buying today.
           We are in the midst of a dynamic adjustment in the local Real Estate market.

Pete Dakin
RE/MAX Parkside Real Estate

<top>