2010 3rd Quarter Forecast and Review

Residential single family homes have almost identical sales numbers through the first 3 quarters of 2010 as compared to 2009. The 570 recorded sales through this year reflect a $278,000 average price which is 5% below the $290,000 2009 average price. Over half of the buyer's are first time home buyers and investors. Rents remain strong and there are a number of attractive loan programs for first time buyers. In fact a homes ability to qualify for USDA, FHA etc. surpasses the asking price in importance to the buyer.

Over half of the sales of single family homes are either foreclosures or short sales. We have almost 100 distressed single family homes on the market today. All the government intervention accomplished was a back up in inventory. Short sales are still tough to finalize but some lenders are making the short sale process easier. We certainly have at least a year or two of foreclosures to deal with in the future. The difficult fact to gauge is the moment when people with huge loan values opt to hold on to their homes because the perception for the future is rosier. Our national psyche is laboring under a malaise reminiscent of Jimmy Carter. This malaise sentiment will pass and the mathematical foreclosure projections will be altered.

Even though sales have stabilized the continued foreclosures have created an almost 15% increase in supply versus 2009. What is interesting to note is that average days on the market, before selling, have gone from 141 days in 2008, 115 days in 2009 to 107 days in 2010. What this indicates is that more sellers are figuring out the market quicker. The market in residential single family homes is crystal clear at the median level. The increased supply means prices will be soft through the coming months.

Bigger homes on bigger acreage are going through a painful resetting in values. This reset process has been lethargic with neither buyers nor sellers interested in participating in the market. Banks are getting some of these ranches back, in foreclosure, but it's taking months and even years to put them on the market. Demand for this product is weak. High quality construction and premium locations get some action. Everything else is soft.

Larger acreage parcels have very little demand. Premier Westside locations are holding their values much better than the eastside. There is no demand for planting acreage in wine grapes and financing is absent in dirt. The supply of dirt for sale is not high but there is a lot of big acreage waiting to come on the market when conditions improve. Values remain soft.

North County has long been a favorite location for urban refugees buying that second home, weekend ranch, or acreage for future building. These discretionary buyers are tenative today. Economic uncertainty and caution are the dominant factors that are restricting any movement in these discretionary purchases. Buyers are looking for value.

The wine industry remains challenged. There is very little demand for purchasing vineyards or wineries. What's important to any perspective buyer is cash flow. Wine sales and vineyards sales of fruit are the dominant factor in marketability of assets. There is demand for wineries with six figure case distribution. Our wine community continues to grow in stature but challenges remain in profitability.

The much anticipated implosion of commercial real estate has not happened as of today. Rents are way down below historical highs and vacancies remain large. That being said life is going on the commercial world. Buildings are being leased and sold. Current owners are making deals to keep tenant. Paso Robles is doing much better commercially then the rest of North County. There is no improvement in the near future but we saw worse in the early nineties.

It's fashionable and trendy to be pessimistic about real estate today. At times it's painful to listen to national pundits dissect the complexities of local real estate markets. Everything comes down to supply and demand. Demand is a psychological phenomenon that changes with the mood of the consumer. Supply is king. The supply of communities with the attractions and amenities of North County is limited. Our supply of available properties will clean up in the next few years. For buyers it's hard to miss in today's target rich environment. Sellers looking for value improvement should consider a window exceeding 3-5 years.

We are where we are today in the real estate market. Starter homes have decent demand and upper end product has weak demand. The wine grape market is soft but could firm up quickly. There appears to be no significant value changes, in the immediate future, either up or down. More sellers will adjust to market conditions in the coming year. Everything in this report presupposes an economy that mirrors today's conditions or slightly improving.

Uncertainty rules the day. Our national perception of economic lethargy is reality. How or why we got here matters not. Americans are hungry for leadership. Let's see what happens in the coming months.