As long as there are business and demographic cycles there will be real estate cycles. It’s not “Different this time.” North County is in the middle of a nasty down cycle. While we are better off then many areas within California, the pain is present. Cycles don’t end on cue, they just fade away. There is a lot happening today in North County.
The average price of a North County residential single family home has dropped to $330,000. Looking back to the peak we see a price dip of almost 30%. That’s a big haircut. There is a vibrant demand for homes in the 250k to 350k range. Very active. Almost 40% of that category are foreclosures. A phenomenal opportunity for the first time buyers and investors. Rents are strong and money is cheap. These properties will not be here forever. Most buyers know these are great deals. Above $500,000 demand is tepid and buyers are skittish. Inventory is not deep. New home building is almost non-existent. In fact residential inventory has stabilized. If we did not have a steady flow of foreclosures, It would be a lean supply market.
Homes on acreage pricing seems to be stabilizing near $600,000. This category is so broad and sales so weak that averages are marginal in judging actual conditions. What is clear, in this market, is that new construction is at a standstill. Hard money lenders have a number of lots and half built homes in this category. It will take years for a lot of the hard money product to trickle into the market. Bank owned foreclosures are popping up with more regularity in this market. Foreclosures ‘equal’ sales. Buyers are seizing these opportunities with the zeal of buyers in the residential category. Inventory is stabilizing.
The million dollar home category is deep with supply. There are over 100  properties listed above a million dollars in the North County and we project 20 or so sales in 2008. That’s a five year supply as compared to a one year supply in residential homes. Sellers and buyers in this category usually don’t have to move. Foreclosure product has been almost non-existent. We have had a standoff in this category the past few years. That’s all starting to change. Foreclosure product, in the million dollar market, is on its way. There is going to be double digit million dollar foreclosure properties on the market. All the buyers that have been on the sidelines will slowly circle this foreclosure product for clues on pricing. No quick movement here by sellers or buyers but there will be movement. Forclosures equal sales. Well priced quality million dollar properties are selling.
Lots and acreage are soft in pricing because of weak demand. Supply is moderate. Since existing homes for sale are plentiful, end-users have enough inventory to select for purchase. Construction costs are down and construction loans are cheap. Permit fees are going to significantly rise in the coming years. It is a great time to build.
Vineyard demand and sales are going forward. The grape cycle is in a rebound stage. The wine industry is healthy. People are looking for wineries; existing wineries are a great opportunity because of the hurdles in obtaining permits for new winery construction. Our wine community has a brilliant future.
Vacancies in the commercial sectors of retail, office and industrial properties are prevalent throughout North County. Demand for the space is very weak. Vacancies will increase slowly. Commercial sellers tend to be strong enough to wait out the weakness. Rents will soften at some point. There will be some opportunities as sellers look to move on. It’s going to be all about price.
Here are some important concepts to grasp regarding North County. Forclosures are selling as fast as they come on the market. North County has an abundantly low supply of approved residential building lots. Total building permit fees on new developments will probably exceed six figures in the future. In a few years a water meter alone is going to be $30,000 on new construction. Fees in the cities will dramatically outpace fees in the county. Existing properties, at today’s prices, are cheap. Demand is abnormally low because of the national angst over sub prime, gasoline, Iran, etc. This angst will not last. Americans figure it out. That’s what we do. Look out when it goes the other way. It’s not a question of if, just when.
Our market is diverse. Home buyers are moving forward in the entry level price category and great opportunities exist in the mid range. The high end market will show some life in the next few quarters as foreclosures start to bring out the buyers. We have so little creation of new product. That’s good for the moment and a positive factor for values in the next few years. The bell has rung at the entry level. The rest of the market is dormant. Opportunities abound.

Pete Dakin
RE/MAX Parkside Real Estate

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