2013 Year End Review and 2014 Forecast
Perhaps the most significant North County event in 2013 was the Water Ordinance. The immediate impact of the ordinance was confusion. As the ordinance plays out, here are some longer range prospectives. It will be more difficult and more expensive to develop vineyards, wineries and homes. Raw land, with no entitlements, becomes a tougher sell. The Cities of Atascadero and Paso Robles should benefit from the restrictions put on county parcels. Existing homes, vineyards and wineries are more valuable when compared to replacement costs. A solution amongst the parties will happen but the affected areas will be more expensive.
North County Real Estate is an inbound market strongly influenced by urban refugees from the Bay Area and SoCal. The Bay Area is the strongest economy in our state and SoCal is really improving as well. Higher end properties will be the biggest beneficiaries of this urban resurgence. The areas closest to these urban juggernauts such as Napa, Tahoe and Santa Barbara have seen huge increases in million dollar property sales. That wave of demand is already hitting North County. We have seen a marked increase in Luxury home demand and we still have deep inventory with reasonable price points.
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.
A number of smaller wineries and vineyards exchanged hands in 2013. That trend should continue in 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 real attractive.
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. 2014 should be a good year for selling luxury properties. Economic strength in our primary markets of the Bay Area and SoCal will spill Buyer demand into North County. We are still a great value in the eyes of the million dollar Buyers.
We could see some real strong pricing in the finished lot small acreage categories. I want to preface this statement by defining these parcels as ones that are not covered in the emergency ordinance. Acreage/parcel supply was already thin and the ordinance squeezed supply even more dramatically. Buildable dirt could be strong in 2014.
Commercial properties are 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.
Did we just go from a collapse in real estate values to an “affordability” crisis overnight? Seems like we did. 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 $400k-700K range. More sellers will be able to sell their homes which will help increase inventory. It will be hard to maintain the double digit percentage increases in prices we have seen in the last couple of years. Stability in prices will be 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 throughout downtown. 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.
Written By Pete Dakin – Broker/Owner of Re/Max Parkside Real Estate