Real Estate News

Almost 900 North County homes sold in 2008 and well over 1000 homes will sell in 2009. The bottom in velocity, number of sales, has happened and pricing is stabilizing. This report reviews North County sales for 2008 with a view into 2009.

Almost one third of the home sold in 2008 were foreclosures or short sale transactions. There were no shortage of buyers for these residential offerings and the foreclosure properties clarified pricing for the entire market Foreclosures will last into our 2009 market. The number of listed single family homes for sale, on less then an acre, is half of the inventory in December 2007.

. With virtually no new construction and few lots for sale it is easy to see demand and supply coming into equilibrium. Demand can change overnight but supply takes time to create.

Median pricing for residential single family homes has stabilized in the $360,000 range. The unique nature of North County, a wide range of property types, makes sale price averages somewhat misleading. What we do know is that property values have been established by a number of buyers actively pursuing homes for sale. Many properties, at the lower end, experience multiple offers. With no new construction the market is relying on foreclosures and short sales for inventory. This situation will not last. Higher end properties are beginning to sell as distressed properties aggressively meet the market. The combination of lower interest rates, bigger loan values and lower prices will spark the high end market. Do not look for any upward price movement in 2009 .

There were a lot of spec homes built on 1-2 acres, with million dollar price tags, in 2005-2007. Many of these estate quality homes, that did not sell, have gone back to the banks. There are great buying opportunities in this category with pricing well below the million dollar mark. Bigger loan limits and cheap money make these estate homes affordable.

Acreage parcels, 10 acres and up, are a very thin market. This fact notwithstanding it is interesting to note the demand for quality Westside acreage. Pricing is very strong for Westside dirt. Premier areas and premier parcels, few and far between, still bring big numbers. The supply of vacant acreage parcels continues to dwindle.

The vineyard market is dramatically divided between the Eastside and the Westside. 2008 crop yields were light in all areas. Westside fruit sells for double, sometimes more, than Eastside fruit. Vineyard land values are equally divided between Eastside and Westside. Eastside values have languished in the low $20K-25K per acre range with Westside figures up to $50K. Pricing for raw Westside dirt, especially plantable, fuels the aforementioned price points. Vineyard quality is also important. Wine sales are fair so demand for fruit should be firm in 2009. Many wineries are signing multi-year contracts. More vineyards will sell in 2009.

Interest rates are hovering under 5%. These low interest rates are going to push more buyers into the market now. Historically winter is a great time to buy because demand is low and sellers are aggressive. Even though our North County Real Estate Market is recovering, we are benefiting from the government induced low interest rates designed to stabilize regions of the Country not as fortunate as North County. Investors and first time buyers will be aggressively pursuing property. This coupling of low interest rates and low property values is unprecedented. As a bonus building costs are down, construction loans are cheap and lower interest rates enable the move up buyer.

It is our belief that the stimulus dollars are already working. We live in a microwave society and these stimulus actions are more like growing a garden then boiling water. We do not know what will happen as the government continues to fuel the fire. In North County the Real Estate market has bottomed and is in a recovery mode. Recovery mode is defined as more sales and stable pricing. There can be no price recovery until sales increase and the sales uptick is underway. Today we welcome price stability.

The North County is one of the most desirable communities in America. It seems like it takes a half hour to drive down Spring Street on Friday afternoon. Hotels are still maintaining good occupancy in the face of a weak state economy and a number of new rooms. Our wineries are competing successfully for market share in a global wine environment. Leadership is a difference maker and our wine industry leaders are making a positive impact. Real Estate is leading our local community out of the economic malaise that has gripped our society. In the coming years North County will exceed all expectations. 

Summary of North County Real Estate Activity Thus Far In 2008

This report details North County Real Estate throughout the first three quarters of 2008. Various segments of the market are performing at different levels of activity and price strength.

Just under 500 residential single family homes have sold throughout 2008. Approximately 40% of these sales have been foreclosed properties. The average sales price has hit $375,000 and there appears to be a bottom in pricing for properties valued below $400,000. First time buyers and investors are actively seeking single family properties priced below $400,000 frequently resulting in multiple offer situations. Inventory is in balance at these price points. Pricing is defined. Buyers are very educated and will respond only if the price is right. Residential single family homes priced at $500,000 and up are languishing on the market and pricing is not clearly defined with more supply than demand.

Homes on acreages is a two tiered market. Smaller homes on smaller acreage, priced below $500,000, are getting decent activity. Supply still outstrips demand but there is a bottom being established at these lower price points. The million dollar category of homes on acreage is an altogether different story. For the analysis, the price point of $800,000 is representative of the floor in higher end estate type properties today. There are over 100 estate caliber homes listed for sale today and there will be 20 or so that sell in 2008. Almost one fifth of the higher end listings are distressed, which means either bank owned or soon to be bank owned. The price reductions have been dramatic in this category. It is the ultimate buyer’s market. There are some great values in this category and buyers are slowly beginning to re-enter this market segment.

Vineyard oriented proprieties are experiencing more buyer activity. Grape pricing has firmed at a reasonable level and wineries are signing multi-year contracts to purchase fruit. There is clarity and definition in the wine grape and bulk juice market. We may even see vineyards being planted in 2009. Existing vineyards are reasonable values when one considers the replacement costs.

Commercial real estate usually lags behind residential real estate. After a couple of weak residential years the commercial market is softening. Office space is overbuilt, industrial dirt is overbuilt and rents are weakening. Big rental users and some niche smaller retailers are surviving. Sales of commercial property are weak because buyers see the supply situation and are demanding good deals. This market is stagnant and rents are dropping.

The best buys in the market are finished lots and acreage. Pricing has to be right but as our market recovers dirt always jumps in value. Our residential market is in the early stages of recovery. There are very few lots for sale and the cost to create new subdivisions is enormous.

The single most significant situation in our market today is the short-sale listing category. A short-sale listing is a property offered for sale at a price below what the seller owes the bank or banks on the home. The lenders must approve the sale and the red tape involved makes these transactions long, frustrating and unpredictable. Many of these short sales never happen. The illiquidity of these properties creates a false illusion of an inventory situation that really does not exist. Our inventory level is much lower in North County when one subtracts short-sales.

The local economies of Paso Robles, Templeton, and even San Miguel are holding up pretty well in this environment. Tourism and hotel occupancy are remarkably strong. Wineries are selling wine but it is competitive. Existing businesses are holding on through the malaise.

Don’t Believe the Newspapers!

The saying, “all real estate is local” has never been more true than in today’s “doom & gloom” reporting. While there is no question that other markets around the state & the country are suffering greatly, I believe the situation here in Paso Robles is different.

Velocity in terms of homes in escrow is improving. In the last 30 days there has been a 37% growth in escrows from 172 to 235, even as escrow close. Certainly, it is still too early to call this situation a trend. Pricing is very soft and much of the newly listed product is still significantly overpriced. Prices will continue to be soft in the coming months. Much more product will re-enter the market while overpriced product languishes. In the short term, interest rates look to be buyer friendly coming into the prime season. This is a good thing.

Buyers are still wary. In a market almost devoid of new homes, waiting for a bottom is like trying to catch a falling knife. It’s the rare triple play of low prices, low interest rates, and available inventory that is vulnerable in a barren building market.

Cycles are cyclical. It’s not different this time. The truth is that risk is counterintuitive. It is actually lowest when it “feels” highest. Buying an asset is taking a risk. Buy low and sell high.

We know from past cycles that pricing lags behind velocity. It may take up to a year before values completely stabilize or begin to appreciate. But I think we can be convinced that we are approaching the bottom of the price curve. The number of multiple offers on bank-owned homes is a good indication others feel the same. With no significant new home construction occurring in or out of city limits, if outside forces such as the economy, gas prices, and the looming election turn positive, there is potential for a more rapid change in appreciation rates.

The bottom line is that if you are a Buyer, you should be actively searching for your home now, and not waiting until the newspapers tell you that the market is improving. If you are a Seller, price your home correctly & aggressively and you will find your Buyer!