2009 3rd Quarter Forecast and Review
This report covers the first three quarters of 2009 North County Real Estate Sales. The majority of sales are residential single family home but the unique nature of our community encompasses land transactions, homes on acreage sales and commercial activity.
The average sale price of a residential single family homes remained virtually unchanged at $290,000 from the second quarter through the third quarter. In fact some properties in the $300K range experienced a slight price increase. Foreclosure properties, a strong supply component, have decreased over the past few months. This decrease is a reflection of Federal mandates and lenders slowing down the supply process. There will still be plenty of foreclosures coming into the system well into the 2010 buying season. There is good steady demand for residential single family homes below $500,000.
New construction of residential single family homes has been nil. With demand stabilizing, over the past six months, it appears some builder developers are cautiously reaching out for limited new projects. This demand for parcels is tentative and price sensitive. Absorption of new spec homes is spotty. What is clear, however, is the supply of new product is very low. If demand continues to slowly recover there will be a need for new spec product. North County does not have the supply of new standing spec product that is so pervasive in many urban areas.
Absorption in large estate homes, on 1-5 acres, will double in 2009 versus 2008. Many million dollar properties were built on spec in 2005-2007 and banks are getting these properties back and aggressively selling the foreclosed product. It's a Buyer's market and deals are being made today. There is plenty of supply in this category into 2010. Prices have stabilized in this category and clarity is present for Sellers, Buyers, Lenders and Appraisers. The cost value for the Buyer is exceptional.
Homes on acreage, from 10 acres on up, is a small but meaningful North County Market. This market has been stagnant due to the weak buyer demand, tougher financing and seller expectations. Everything about this market is changing today. The economy has created foreclosures in this category and price discovery will play out over the next 12-18 months. We just sold a twenty acre foreclosed property with two homes for $535,000. That's where this market is headed. In fact we are there today. The pipeline of properties for sale is filling up. Buyer demand is still very weak but good deal pricing will do the same thing for this market that pricing did for homes and estate homes.
Large acreage parcels and vacant residential lots have been dormant over the past few years. Supply is very shallow in both of these categories. There is some buyer activity in finished lots. Larger vacant dirt is still not in demand. Seller financial pressures do not typically exist in the larger parcels so absorption will probably remain weak well into 2010. The soft grape market also influences weak dirt demand. Finished lots will absorb much faster in 2010.
Publicly held wineries account for a dominant share of the demand for wine grapes. These handful of wine grape buyers have shut down demand based on their financial fears. There has been very little planting but Westside fruit is still in demand from local wineries. It's a very tough time to be a grower particularly on the Eastside. Agriculture is a high wire act and wine grapes are not exempt. Our area continues to produce and sell quality wines. Our tourism industry is growing. Creating and building wineries and vineyards is getting harder and more expensive. This market could turn around in a moment or slog through another year.
Commercial activity is weak but there are smaller users in the market leasing smaller spaces and trying to buy buildings. Everything about this market is price driven. The large vacant spec buildings and plentiful supply of vacant acreage is getting no attention. The Lowes opening will be interesting to gauge the impact north of town. Investors are brutal in their value judgments.
Our economy seems to be trying to recover in spite of government intervention. There is no bail out for our local real estate market and yet homes have stabilized. We have a very thin job market with statewide double digit unemployment and yet North County moves forward. These aforementioned facts coupled with our natural beauty bode well for the future. While big wineries bludgeon one another over market share many of our small high quality wineries quietly go about their business of selling wine. People visit our community and spend money. It's a beautiful thing.
Certainly this is a unique market we are experiencing. We believe that it will only get more expensive and difficult to build anything in San Luis Obispo County. Coastal California comes with a price. Water is going to be more of an issue. Our wine industry will grow and bring in more tourism dollars. Long term today's real estate values have generous upside. The recovery may zig and zag more than the market expects. Supply is omnipotent and they are just not making any more North Counties today!