2014 First Quarter North County Real Estate Review

This real estate review is for the first quarter activity in the North County real estate market.  Today, the wine industry and the grape growing industry are driving economic activity in our community.   A decade ago construction was the driving economic force.  Things change.  Communities need revenue to sustain public services.  North County is fortunate to be the right place at the right time.  Furthermore our City leaders have actually facilitated this economic growth, via the wine industry and keeping our City solvent.

In this first quarter residential single family home sales dropped 15% in numbers sold, but the average sale price rose 20% to $368,000.  The supply of homes for sale increased by 100 units, or almost 30% from 2013 to 2014.  The average list price rose to almost $400,000 in the first quarter.  Sellers are getting ahead of the market today with the expectation of Spring activity.

The luxury home market is moving at a pace similar to last year.  Sales, pending sales and supply are all somewhat in line with last year’s numbers.  There is increased spec building activity in the high end million dollar properties for the first time in years.  It’s still a Buyer’s market at the high end.

Paso Robles has been lauded in the press quite a bit recently, beginning with the Central Coast being named the number one wine region in the Country last year in the Wine Spectator.  Every few weeks we see a new magazine or newspaper article describing the beauty and desirability of this region.  And even a new poll by Gallup Well-Being ranks this region’s population as the second most satisfied in the United States.  Tourists have discovered this place and the pace is not slowing.  Paso Robles is on track to double our current number of hotel rooms.  Perhaps these rooms will not all be built immediately but this is an extraordinary vote of confidence from inbound private money.  And with any real estate review of our area tourism is noted as driving new restaurants.  Wine tasting room sales have been stable and growing. This type of economic activity is helping to absorb retail commercial space by providing entrepreneurial opportunities for small business people.  Demand for office space is still weak.  The wine industry creates some demand for storage, processing and ancillary small support businesses.

The Paso Robles version of Silicon Valley success stories are boutique wine brands.  Investors are seeking cash flow and growth off Wall Street.  Some local Paso Robles brands are now worth millions of dollars net of real estate.  We have some larger operations that may approach a billion dollars one day in brand equity.

Demand for wine grapes is stable.  West side fruit is in high demand.  Raw land for planting Westside fruit is in demand.  The pricing for existing vineyard properties is also very strong, both east and Westside.  A combination of solid prices for fruit and uncertainty of planting, because of the water ordinance, is driving this demand.  We also are seeing crush facilities at capacity with more in demand.

Drought conditions have created a cloud of uncertainty within the entire state.  Real estate buyers are more cautious across the board in regard to water.  This buyer caution has delayed some sales.  I believe the drought will also foster innovation and conservation measures that will strengthen our community in the long term.

Real estate remains a strong investment in North County.  Our community is well positioned for economic prosperity in the next few years.  The cost of building a home, planting a vineyard or building anything will continue to rise through government fees and restrictive policies.  Existing properties are a good value when compared to replacement costs.  The drought accelerated the future cost of building and planting.  Desirable communities tend to become pricey communities.  That’s just the way it is.  We are on our way.

2013 North County Real Estate Review

2013 ended on a very positive note, with all of us looking to 2014 for more of the same positive market growth.  Home sales in 2013 were similar in volume to sales in 2012.  The average sales price jumped up 14% to $333,000.  By the end of 2013 prices had stabilized in most categories.  Selling homes in the $300k – $500k range became more competitive again.  As prices peaked, sales leveled off. Inventory is still way down and so is new home construction.  Any further price movement, assuming slightly higher interest rates, is going to be linked to economic improvement.  Prices should remain firm.  At this moment in time it’s actually a somewhat balanced market.

Perhaps the most significant North County event is 2013 was the Emergency Water Ordinance.  The immediate impact of the ordinance was confusion.  As the ordinance plays out, there are some longer range impacts.  It will be more difficult and more expensive to develop vineyards, wineries and homes.  Raw land, with no entitlements, becomes tougher to sell.  The Cities of Atascadero and Paso Robles should benefit from the lack of restrictions which only apply outside their limits.  Existing homes, vineyards and wineries are more valuable when compared to replacement costs.

A number of smaller wineries and vineyards exchanged hands in 2013.  That trend should continue into 2014.  Grape pricing is solid and clearly the Paso Robles Appellation is growing in stature.  The price for developed vineyard property will be strong.  There remains a decent inventory of existing wineries for sale at very reasonable price points.  Development restrictions are not going away any time soon, so these existing properties are very attractive.

North County real estate is an inbound market strongly influenced by urban refugees from the Bay Area and So Cal.  The Bay Area is the strongest economy in our state and So Cal is really improving as well.  Higher end properties will be the biggest beneficiary of this urban resurgence.  Million dollar homes increased significantly in sales numbers this past year.  There was ample inventory and prices were very attractive for Buyers.  At this point, inventory has stabilized and pricing is clearly defined.  We are still a great value in the eyes of the million dollar buyers.

Commercial properties are also included in this real estate review and improving as our economy grudgingly improves.  Prime retail properties are leasing but secondary locations are still soft.  Small office space is absorbing as rents have met the demand.  Industrial property is getting more user activity.  Apartments are stable.  Overall commercial rents are still below peak numbers.

Interest rates will rise in 2014.  Home building will be limited by the lack of buildable lots and the water situation.  Everything points to firm prices in the $400 -$$700 range.  More sellers will be able to sell their homes which will help increase inventory.  It is doubtful that we will see the double digit percentage increases in prices we have seen in the last couple of years.  Stability in prices is more likely in 2014.

Economically North County is well positioned.  The wine industry has spawned quality restaurants and hotels throughout Paso Robles.  Small higher end retail businesses are popping up.  The Wine Enthusiast magazine named Paso Robles the Wine Region of The Year.  Our Paso Robles city bonds were raised to AAA status.  We are becoming a legitimate tourism destination which is great for business.  Success is a function of a number of little things leading to something big.  Those little things are in place.

“Always Expect the Best”