Every day I cull through all the major California newspapers, electronically, to get a feel for the economy, construction, housing etc. While all markets in California are different, there is some connection between statewide conditions.  As an example the major urban areas of Southern California and the Bay Area have a real and direct material impact on North County Real Estate.  Our inbound market is still dominated by urban refugees from these aforementioned areas.

 The media was no more responsible for this cycle then Centex or Greenspan.  A combination of excess cheap money, low lending standards and overbuilding in many areas created this situation.  Years ago the media began to promulgate bubble fear and once demand psychology dampened we had a cessation of buying activity.  Supply is omnipotent. 

 We know, in our office, the true supply picture.  Building at a standstill with little entitled land available now or in the immediate future.  Foreclosure product selling as fast as it comes on line.  Much of the available listed product is grossly overpriced.  Some of this over priced product will get real but the process is usually cumbersome and lengthy.  There is no short term remedy for increasing the supply of product once demand increases.  Not in North County.

 While the media does not cause cycles, the effect of the media promulgating fear certainly exacerbates the situation.  Modern day television media came of age in the gulf war.  CNN made their bones.  The early nineties housing debacle was devoid of cable madness and bloggers.  Our current cycle has experienced the full weight of cable and electronic reporting.  There is fierce competition to “call the story”, “break the news” and create situations.  An emerging national media of cable and bloggers took the most local of businesses, Real Estate, and tried to nationalize the story.  No harm in this attempt but substance is marginal.  Realize, however, the reverse will be true.  In fact, it will be exaggerated by pundits desperate to “call the bottom!”  Many places have already bottomed out.  Never had a bottom.  Some of the overbuilt areas have supply situations that will take a few more years to work through.  Be that as it may there will be a drumbeat of housing recovery pundits desperate to make their mark.  And they will all be right sooner or later.

 Back to the beginning and what this means for our Clients.  Most of you heard the phrase or concept that San Diego was ground zero in this most recent cycle.  We are beginning to see articles and statistics coming out of San Diego that talk about affordability, reasonable inventory and a bottom.  Certainly we see this happening but it is the major media outlets that are beginning to spread the word.  Supply in San Diego is certainly thinner then supply in San Bernardino or Stockton.  We will see a quicker recovery in the coastal areas, the areas of importance to North County, and then we will see the inland empire recover.  The media is going to jump on the bottom and “call the recovery” quicker then it actually is happening!

 The stimulus package which provide $700K+ mortgages at competive rates are going to hit the market quickly.  Many people blame the tight credit standards for the cycle.  Credit is loosening up.  Now ask yourself the following question.  Is there any segment of our market that is overbuilt?  Perhaps the 20 odd, and I mean odd, Million Dollar spec homes would qualify as overbuilt.  Other than these homes, we would qualify as under built!  A vibrant coastal community with no new spec product?  Hotels, Wineries and big time tourism.  A parking crisis because of too many people trying to buy things downtown!  The down cycle is on thin ice and it’s warming up quickly.  By the way, the mortgage increase will help the million dollar stuff clean up over the next 12-24 months.  This high dollar market has a bit more to go.

 These are the facts.  Buyers and sellers understand the power of the media.  Get these articles and facts in front of them so the buyer can understand the future.  Buyers understand supply and demand.  Keep your buyers up to date on product closing and going under contract.  The lack of entitled land is a harder concept to grasp, but your institutional, developer and investor Clients need to be ready. Opportunistic values will emerge.  Money is not going to get any cheaper.  Don’t forget the interest rate situation.

 There is absolutely no reason to wait if you are a buyer of residential single family homes.  None.  Every buyer has been waiting for a bottom.  It’s here and very soon the media will be jumping on the bandwagon.  Get ahead of the curve.  You have such a restricted supply in North County.  Within a short period of time your upper end buyers will be able to seize high end product significantly less then list price today.  The best and cheapest million dollar deals will be in the beginning to middle of the million dollar correction.  Now is the time to go at these sellers.  It’s take it now or take it later.

 We have a great chance to put buyers into discounted product with cheap long term money.  Ask the veterans in our office the following question.  Have you ever seen these prices with these interest rates and loan limits?  Don’t let the moment pass.

 A big hurdle we have in educating our buyers is the reluctance of Clients to take actionable buying advice from a commissioned agent.  The perceived conflict is inevitable.  We are in an industry that is dominated by part time self absorbed agents.  It’s all about them or the next Ponzi scheme.  We can help our Clients see the market.  Use statistics to paint the picture.  How many homes are really in the hunt?  Clients need our help.  It’s a great time to be a buyer.  An almost unbelievable time to be a buyer. 

Real Estate is local and dynamic.  Market conditions in North County may be vastly different from areas like Fresno, Carmel and Los Angeles.  This first quarter analysis, of North County Real Estate conditions, will specifically detail our local market and what the future may hold. Most people understand that Real Estate is cyclical in nature.  However the majority of REALTORS®, Lenders, Buyers, Sellers and Government Officials have never been through a down cycle.  When you couple this inexperience with the fact that Real Estate is a business with ten year cycles and five year memories, you have today’s communal angst.

In the short term, years, cycles are demand driven.  In the long term, decades, all markets are dominated by supply.  Demand is a psychological phenomenon.  During our most recent Real Estate boom people were willing to pay big prices because of the expectation that home values would inexorably rise.  Now the candidate buyers are fearing a continued erosion in value.  It’s not so much that buyers are trying to pick the bottom of the market, it’s the fear of further price deterioration that is curbing buying activity.  Once that fear subsides, and it will, one needs to look at lack of supply coupled with aggressive pent up demand.  Americans are optimists and we don’t stay down for the count.

The average price of a North County home, at $394,000, was unchanged in the first quarter of 2008 as compared to the end of 2007.  As we reported earlier homes took a 20% hit in value that was realized in the latter half of 2007.  Prices have stabilized and there are plenty of sales to figure out what value a buyer should pay and at what price a home should be priced to sell.  Foreclosures dominate the supply of homes that are being purchased. This supply, of foreclosed homes, will continue to fuel our market throughout 2008.  People are buying these foreclosed homes as fast as the homes come on the market.  This supply of foreclosed homes is extremely short term in nature. 

Homes on acreage experienced a 21% decline in value in the first quarter as compared to year end 2007.  There was less “funny money” fueling homes on acreage so there are fewer foreclosures in this category.  The average first quarter homes on acreage sales price was $627,000.  Supply is shorter in this category but buyers are still price driven.  Homes on acreage will sell but the price must be in line with current values.  There is no upward price movement in 2008.

Million dollar homes are the most vulnerable to further price erosion.  Sales of million dollar properties have been sparse; a total of 4 in the first quarter, and available supply exceeds 50.  Pricing of sold million dollar homes dropped 13% but another double digit drop is probably imminent.  This category has been marked by tepid demand and long supply.  Some foreclosures are creeping into this market and this situation will exacerbate the price weakness.   

Our wine industry continues to perform very well.  Wine sales are good and grape prices have improved.  Producing vineyard values have stabilized.  Westside fruit is in strong demand.  This industry is the foundation for our ability to compete for agritourism. 

Commercial construction is almost as strong as residential construction is weak.  Government projects include the Library, Court House, Highway 46, Vineyard off ramp and The Spillway.  Office rents are weak and supply is growing in office product.  Industrial land is in long supply and prices will soften.  Demand is average for office space and industrial land, but supply is too deep.  The lodging and restaurant businesses are performing well given the competitive landscape.  Major retailers continue to gravitate towards North County.

The trough in a Real Estate cycle is usually rife with despair and hopelessness. When government tries to “solve the problem,” the market is usually on the way to correcting itself.  Buyers backed away from the market beginning in August of 2005.  Sellers take years to adjust, in price expectations.  But we see stabilization in home sale prices today.  It’s helpful to use the acronym FIFO in this economic cycle.  First In, First Out.  Real Estate started our current economic malaise but Real Estate will be the first out.  We are not talking about price increases; we are talking about sales volume.

North County has a dearth of available lots for building.  The supply of homes will become a shortage at some point in the future.  Our next “crisis” will be a home shortage.  You read it here first.  If you are in the market to buy a home, get it done now.  If you are a home seller, wait a couple of years.  If you are a seller of a million dollar home or home on acreage, get in tune with current pricing.  There are going to be some great buying opportunities in the upper tier price category.  It’s a perfect time to be a move up buyer.  Pricing is defined at the low end and supply is growing at the higher end.

We live in an area that is coveted for its quality of life.  People are going to continue to gravitate towards the North County lifestyle.  Our Real Estate values have held remarkably well for an area that has so few jobs.  The biggest challenge we have is managing our resources such as water, sewer and traffic circulation.  It’s all about quality of life for North County citizens.  

Is Your Agent Working For You?

By Fred Bruen, Realtor

Have you ever had a neighbor list his property for sale - watched the sign go up, noticed a few people viewing the property, and then - low and behold - the “SOLD” rider was hung on the yard sign! Neighbor Joe sold his house. Good for him.
A month goes by – two, maybe three. The sign’s a leanin’, “SOLD” is water stained from the sprinklers and neighbor Joe shows no sign of moving. What happened? Thought it was sold?

Next thing you know, the “SOLD” rider is gone, the sign has been straightened and people are looking at the home again.   Looks like neighbor Joe’s escrow crashed for one or more of a myriad of possible reasons and he’s back on the market looking for another buyer.
Unfortunately for Joe, he became the one-out-of-five escrows that fails to close successfully.  That’s right -market averages indicate that 80% of escrows close successfully leaving 20% that don’t. Certainly some agents close a higher percentage than others which is a great indication of hard working, good communicating, great contract writing and transaction management skills. But some things can’t be helped. I’ve been selling real estate since 1987 and in that time I’ve seen two escrows fail because the buyer died just days before the scheduled close. Now nobody wanted this to happen (especially the buyer), but it did and the sellers lost a sale.

The first thing Joe should do is to have his agent call all the buyers and agents who expressed an interest in the property while it was in escrow to make them aware of the property’s availability. But how many potential buyers did Joe miss out on because of the “SOLD” rider in his front yard? Statistics show that better than 30% of inquiry calls into a real estate office are generated from the signs on listed properties. Buyers still drive through neighborhoods in which they have an interest and call on properties with signs. These are better qualified buyers because they have seen the house and area where it is located. The probability of this person buying is greater than someone who saw a few words, and maybe a picture, in a newspaper. How many of those buyers kept driving because the property was sold? That’s hard to say. Have you ever been a buyer, seen a property with a “SOLD” sign on it, expressed disappointment and kept on driving? I’m sure it happens.

So why was the sold sign so prematurely installed? It certainly doesn’t benefit the seller to stop marketing the property in this way. Whose interest does it serve? Who put the sold sign up there anyway? Bet it was the seller’s agent. How does the sold sign benefit the agent? The agent is now advertising the fact that he/she can sell homes. This is an effort to generate another listing from surrounding property owners. Now whose best interest is the agent representing? Not the seller’s - only their own.

I believe in maintaining a positive attitude and working toward closing an escrow successfully. However, we know that not all escrows do, so why not continue to at least take names and numbers of people who have called on the property?  This would give the seller and the agent a place to start in the event that disaster should strike.

I also believe in the power of a “SOLD” rider on a property sign and the benefit that it affords the agent. I ask the new owner to allow me the opportunity to leave the sign up for a couple of days after the close of escrow and then continue to advertise the sold property. Just a couple of days gets the message across. Any earlier than that and you’re turning away potential buyers.

“Sold” “Sale Pending” “In Escrow” they all do the same thing, deter prospective buyers, the best buyers. When interviewing agents to hire to assist you in the marketing and sale of your home ask if they use these riders. If they do, consider where their priorities may be and if they are really working for you.

  Sales for year end 2007 were off 29% from year end 2006 for ranches, homes on acreage and land.  That was app, the same drop year end 2006 had from 2005.   The average property is also taking about 30% longer to sell also.   Average time on the market: app. 200  days.  Those are the ones that are priced right.    Properties that are overpriced will not sell. Period! 

 Sellers that are pricing correctly in the beginning are getting much faster sale times then the average and much closer to their asking prices.   Sellers who apply ...

The number one rule in an oversaturated market is to not over price your homes value. If you start out with too high a price on your home, you may have just added to your stress level, and selling a home is stressful enough. Your real estate agent should be providing you with a written market analysis, commonly referred to as a CMA-comparable market analysis- and be able to show you the number of active listings on the market in your price range, so you can see what other homes you are in competition with, in addition ...

 
 This report is a review of the North County Real Estate Market in 2007 and a status report of where our local market is today.  Predicting the future is hard so we will give you the important data so that you can make informed decisions regarding your Real Estate positions.  All Real Estate dynamics are local.  There is no national Real Estate market.

 Over 700 residential single family homes closed escrow in 2007.  This number was almost identical to closed escrows in 1997.  The average sales price in 2007 was $396,000 as compared to the average sales price in 1997 of $136,000.  So homes have almost tripled in value in the last 10 years.  Crisis?

 Perhaps the best pricing illustration of North County Home Pricing is the review of a specific home that sold in 1999, 2005 and late 2007.  Subject home sold for $265,000 in 1999, $675,000 in 2005 and $525,000 late 2007.  Nothing we can say illustrates the history of our market, in the last eight years, clearer then this aforementioned example.  Homes are still selling at twice their price of eight years ago.  In 90% of the markets in America this would be heralded as a triumph!  Yet there is seemingly no joy in Mudville.

 Homes on acreage, ranchettes, recorded 264 closed escrows in 2007 as compared to 362 closed sales in 1997.  The average sales price was $788,000 in 2007 compared to $210,000 in 1997.  This price reflects a near quadrupling of value in the past ten years.  In 1999 this average price point topped $300,000 for the first time.  So in the last eight years we have more than doubled our average sale price. 

 Dirt, raw acreage, is a different story.  As North County has grown, since the last boom of 1989, vacant ground has been scooped up by builders and growers.  Demand and pricing for Westside raw acreage, in particular, remains high in this aforementioned category.  Demand for residential single family lots and small east side acreage has cooled significantly with the slowdown in sales.  In these weaker small acreage categories prices have dropped 30-50 per cent from the high two plus years ago.  Westside dirt will be strong in 2008 and small eastside acreage will remain very price sensitive.

 The wine grape market continues to moderately improve.  Vineyards are selling for below replacement costs, on the eastside, and there should be more action in this arena in 2008.  With over 200 wineries in North County and strong wine sales the vineyard market is definitely on the mend.  Westside grape prices are very strong.  If you want to get into agriculture, 2008 might be a good time to make a move.

 Residential single family foreclosures will be a factor in 2008.  The number of sold homes should exceed 700 units and foreclosure sales will exceed 100 units but be less then 150 units.  New home sales will be insignificant in number.  Foreclosures are selling as fast as they come on the market.  It’s not unusual for foreclosed listings to have half a dozen offers on them when they hit the market.  There is demand for all properties if the price is right. New homes, still standing, and foreclosures will be the value leaders in 2008.  Pricing is still the dominant topic this year.  Any home, priced right, will sell.

 This whole market correction, in North County, had its genesis in buyer demand resistance.  Pricing got too high, in the buyer’s eye, and the music stopped.  Sellers take years, not months, to react to market changes.  Supply builds over this standoff period and we have today’s market.  Sellers are now getting much more competitive.  Prices just started adjusting significantly in the fourth quarter of 2007.  There are plenty of sales in the market so the pricing is defined.  Prices will still be soft in 2008 with downward pressure.  The big downward adjustments have already happened so don’t expect double digit drops in 2008 as compared to fourth quarter 2007.  The media may report huge drops but in reality those numbers are already in place.  It’s already happened.

 Markets are driven by demand in the short term and supply in the long term.  North County is a very challenging market to develop new properties.  In 1990 there were 2000 approved lots unbuilt in Paso Robles.  Today those are just over 500 approved vacant lots in Paso Robles.  We have community challenges such as circulation, water, sewer and safety.  Politically and structurally it is going to be difficult to approve thousands of new tract homes as was done in the late eighties.  This restricted supply situation will help values rebound quicker then expected. 

 If you do not have to sell your home this year then wait until next year.  If you want to sell this year get your home on the market today.  The peak of North County Home Sales is June, followed by August, May and July.  It takes a few months to get a property sold so do it now.  Look very hard at the pricing.  Prices are not going up in the near future.  If you are a buyer you should get into the buying mode sooner rather then later.  The supply situation we have today will not last forever.  It’s really a great opportunity for buyers to get into a market on today’s terms.  It’s very rarely this sweet, on the buyers side, in North County.

On caravan, over the past two days, it surprised me that the majority of the prices on listed properties are at least 10% above the current market! These sellers are way behind the curve. We are selling property and the market is clearly defined. Buyers will buy if the price is right.

Today bank owned properties are selling as fast as the properties come on the market. Banks price the properties at a competitive price point and offer a fair market commission. These bank owned properties will continue to come on the market throughout this year. This is a great buying opportunity that will not last forever.

            Many of the homes selling, in North County today, have multiple offers to purchase from buyers.  If the listed price is competitive there are plenty of buyers.  If you are buying, be prepared to compete.

            Large vacant acreage parcels have not dropped in value.  The market is thin but pricing is firm.

            All Real Estate is local.  There is no national Real Estate market.  Conditions vary from community to community.  Prices, in 2007, increased in Salt Lake City by over 20%!

            North County foreclosures are selling as fast as they are coming on the market.  Banks are not giving these foreclosures away.  Prices are competitive.

An important thought came to mind when writing this month’s real estate article.  Maybe it was due to the fact that the deadline to pay property taxes was December 10, 2007. Next deadline is April 10, 2008, which as we know will sneak up on all of us, quicker than we say happy New Years! Our job as a REALTORS® is to keep our clients, and in this case, the community informed about Real Estate, the market, and its related issues.  Recently there was an editorial in the Tribune noting that laceName w:st="on">SLOlaceName> laceType w:st="on">CountylaceType> is reassessing some properties to cut the tax burden. So the market’s down turn has a positive side?  Yes. In fact, the decline in the market represents an opportunity to have your home reassessed in the event you believe your home is worth less than the assessed value listed on your property tax bill. The good news is our laceType w:st="on">CountylaceType> laceName w:st="on">AssessorlaceName>, Tom Bordonaro’s office, has already taken the bull by the horn and started reviewing assessments on many properties. In the event you feel you are in need of a reassessment, you can apply by filing a formal request.  The form is available to download by going to: www.slocounty.ca.gov/Page81.aspx. To complete the form you will need the following information: the property address, parcel number, date of purchase, purchase price along with information on recent sales-NOT listings-actual properties that have closed escrow and sold. You can find recent sales in the Triibune, or more simply, contact your Real Estate Professional and have them pull the information for you. It’s a simple process and can be done quickly and given to you in a timely manner.  In the event you would like recent sales, feel free to contact us. More information on Prop.8 is available on the website noted above. You can also contact the laceType w:st="on">CountylaceType> laceName w:st="on">AssessorslaceName> office directly at #781-5643 or the Atascadero office at #461-6143. In any event, there is a positive side to the decline in our market and no one can deny that Real Estate is still a sound investment in our County.