2010 North County Forecast and Review

            Fear is rapidly leaving the North County Real Estate scene. The number of real estate transactions topped 1200 sales in 2009 with over 800 residential single-family home sales. Total sales volume was close to 500 million dollars. This sale increase equates to a 9% bump over 2008 numbers. There was a lot happening in 2009 and more to come in 2010.

            The average sale price of a residential single family home today, in North County, is $301,000. This number represents a nearly 40% drop from the brief average pricing of slightly above $500,000. First time homebuyers and investors are very active in this market. Apartment and home rents are not cheap in North County. With the combination of low interest rates and low home prices the monthly payments are very attractive. This price point of $300,000 is very competitive for buyers. We could very well see close to 1,000 homes sell in 2010. This activity is remarkable when one considers the almost complete absence of new construction.

            Home pricing is a lagging indicator. The first step in a recovery is transactional velocity or the number of sales. With this current sales velocity we have already seen a floor established in pricing with periodic slight bumps upward.  Pricing should be relatively stable but there is more chance of price increases, albeit slight, then price decreases in the core residential market. That’s a huge change from the last few years.

            Estate homes on small acreage are moving very briskly. These McMansions are selling for well below replacement cost. The values are stunning and the buyers are stepping up and buying. This trend will continue on into 2010 but the supply of these

Big Beautiful homes is much more finite than core residential properties. Today there is still great supply and pricing is very well established. This is a healthy market. There has been no upward price pressure in this market. We see no upward pressure in 2010.

            There is a decoupling of vineyards and wineries in relationship to values. Vineyard values on the eastside are soft and Westside values are stable. The major international wineries, big buyers of our local fruit, are cautious. Everything seems tentative but this could change quickly. Today the wine grape market is unclear. The time and effort to get a permit for a winery and tasting room has become a two-year process. Buyers are starting to see the value in the entitlement for the winery. More important than anything is the health of the brand and wine sales. There are lenders for this category of established wineries. Values are well established. Sales are happening in wineries. Given the past economic shocks, our tasting room traffic is relatively good. There is no area in California, that has more upside in the direct wine sales arena than North County.

            The biggest change in North County sales for 2010 will be homes on acreage. Foreclosures have begun to hit the market in this category, this process then creates a floor in pricing. Buyers, sellers, lenders and appraisers all get clarity in values. This market segment is not a big part of our market but there are deals being made today.

            Much has been written about the coming implosion of the commercial real estate market. Vacancy equals uncertainty. We do have vacancy in North County and we do have uncertainty. This market will probably bump around for another year or so before velocity picks up. Smaller tenants are doing deals and smaller buildings are being sold to users and investors. It’s a very price sensitive market. The commercial market will be the last category to exit the doldrums.

            New construction supply has been replaced by foreclosures and short sales. These distressed properties are fueling the market and creating a whole new class of homeowners. There will be more liquidity in distressed properties in 2010. After a few years banks are getting better at the process. Distressed properties will not be around forever. The opportunity is today.

            Given the option of not losing money or the risk of making money, most people will opt for not losing money. The big fear in real estate, for the past few years, was that values had more room to fall. This fear of value erosion has left the building for the most part. It’s still about getting a good deal but there is comfort that a bottom is in place. Now the hurdles are lenders and appraisers. This return in confidence could bode well for North County beyond anyone’s expectations. Most probably foreclosures and short sales will not be around in a couple of years. The wine business has room to improve as well. There is still a lid on pricing but more importantly there is also a floor. It wasn’t that long ago that North County was a billion dollar market! 2010 should be a positive year for North County.