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.