Fourth Quarter 2002

Real Estate 2002 and Beyond

     North County Real Estate sales hit 600 million dollars. Just 10 years ago our market was a 100 million dollar market. Commensurate with this explosion in sales volume has been a strong upward push in prices. Low interest rates have been the dominant factor in our strong Real Estate market. This report will review 2002 with an eye towards 2003.

     The average sales price for a North County home was $271,000. This average price reflects an 18% increase over 2001. Pricing is strongest in residential homes from the bottom to about $400,000. Homes priced above $400,000 will take significantly longer to market than lower priced homes. Seller concessions are also more prevalent in higher priced residential homes. Competitively priced new homes are being sold during construction. There is ample supply of new home construction coming on line in 2003. Pricing should be firm in 2003 but increases will be significantly less than 2002.

     Sales of homes on acreage jumped 20% above 2002 sales. The average price of a home on acreage sale hit $455,000. Pricing is very firm in this category up to $600,000. Above $600,000 buyers are very selective and quality of construction becomes a dominant consideration in the purchasing decision. Homes priced below $600,000 can sell within 6 months while homes priced at $1,000,000 or above can take 12 months or more to sell.

     Acreage or raw land is just about as hot as residential single-family homes. Small acreage parcels, from 10 acres on down, are in high demand and dwindling supply. A properly priced 10-acre parcel can sell in 3 months. Larger parcels, with a price point up to $600,000 are also in great demand. This demand is driven by home site considerations and not viticulture. Supply at 50 acres and below is at an all time low. Marketing time can still be from 6 to 12 months on higher priced parcels because most of these deals are all cash transactions. Vacant ground is a disappearing commodity.

     Most premium wine grapes are in an oversupply situation. Prices paid for uncontracted fruit have dropped in half over the past few years. Agriculture is always uncertain but the grape supply situation has put a real damper on demand for vineyard purchases. More cheaper quality fruit should enable wineries to lower bottle prices with increased quality. This combination of lower prices and higher quality should lead to higher consumer demand for Central Coast wines. Our area is seeing a marked increase in stature but the business of selling wine is getting very competitive. Larger parcels, of 200 acres and up, have not experienced the demand or price strength of smaller parcels, because demand for planting grapes has ceased.

     Demand for income producing property remains very strong in the North County. Low interest rates and a funky stock market have fueled this demand for Real Estate acquisition. Rents are stable across the board. Buyers want to purchase leased or rented buildings. There remains a question of the depth of the demand for commercial space.

     There are some significant government imposed actions to watch in 2003. The state of California has levied a withholding tax of 3 1/3% on properties other than principal residences. This is not a new tax but it is a way for the state to get taxpayer money up front whether it is owed or not. The U.S. Fish and Wildlife services is proposing to designate 85,000 acres found within San Miguel and Carrizo Plain areas as critical habitat for two vernal pool species, the Longhorn Fairy Shrimp and the Vernal Pool Fairy Shrimp. Unless you are a Fairy Shrimp this is probably not a good thing for private property ownership. The service is under a court order to complete the final rule for critical habitat decision by February 14, 2003.

     Pricing in the urban areas tends to lead our pricing in the North County. Southland home prices are every bit as strong as North County. Even the Bay Area median home price increase reached 13% on a year-to-year basis. The economic projections for the state are lukewarm. We have talk of war, a huge state deficit and a still soft technology industry. The major concern for the economy is the increase in business caution.

     Despite this good news bad news conundrum, the prognosis for North County Real Estate is positive for 2003. With the exception of vineyard sales, most real estate categories will remain strong in demand with firm pricing. No one is projecting big price increases similar to 2002. Demand for the North County lifestyle coupled with our relatively affordable pricing will continue to push the Real Estate industry forward in 2003.