Time and the Market

In Mendocino County, the Anderson Valley and adjacent byways leading to the Pacific and the coastline from Westport in the north to Gualala in the south are extraordinary habitat for human beings. Very special people come here looking for a piece of this dream. They ask for that perfect beach shack in need of renovation or a valley parcel with a creek or pond. The chances of either ideal ever being available are few, but there are always exciting properties for sale no matter what the market conditions. Fall of 2007 is no exception.

No need for a crystal ball to predict that the real estate "down" market would eventually rear its ugly head. Real estate markets are cyclical. It is never a question of "if" but a question of "when" the brakes go on. It is just basic Economics 101. The fact does not make it any easier to contain your panic if you are a seller, and your jitters if you are a buyer. I've been selling real estate for almost 19 years in Mendocino County and this is the second "down" market I've experienced here. The first experience has prepared me for today's reality.

The North Coast lags behind the cities in reacting to market conditions. If you are a buyer, you might have an unrealistic expectation of what you will pay for a second home or land in the Mendocino area during this market. You may be judging the price and percentage below list price you think you can pay based on prices in the area you come from. In our area we do not experience the wide swings in prices in either direction under many differing market conditions.

This is a resort region. It is an area of "choice" rather than a place where people move to find work. For one thing, we are used to longer market times — six months is not unusual. A seller's reaction to a low offer is very different from places like Sacramento where entire subdivisions of new homes are going on the auction block. Many of the sellers do not have to move, it is a choice for them. Having said that, there comes a time in the life of any listing when the seller is ready to go. Timing is everything. You will never know as a buyer if you are in harmony with such a seller if you do not make a WRITTEN offer.

By way of illustration, I have done some research into sales history for our local Multiple Listing Service and have come up with some interesting statistics:

Between October of 2006 and October of 2007, 140 homes ranging in price from $200,000 to $2,200,000 sold in my area of practice. That is an average of almost 12 homes a month. This is a small number by city standards, but significant in this rural area.
Of those homes sold in the time period, 25 were priced at or over the one million mark. That is an average of two homes in that price category a month.
Fast forward to the month of September 2007. Last month there were 14 sales of homes reported a bit ABOVE the monthly average.
Of those sales, FIVE were homes that sold for over one million dollars. That's more than double the monthly average from the previous eleven months.

What do the people who can afford the million-plus homes know that gives them the courage to buy? It is quite simple: there is no time like a down market to invest in real estate.

What are the best buys in today's North Coast market? The areas around Mendocino Village and Anderson Valley high ridge properties continue to bring the highest prices and have always held their value through the years. There are some properties in Fort Bragg — at the edges of town with river or ocean views — that have great potential, especially for the buyer who is going to hold property for five to seven years. Fort Bragg is making a genuine effort to attract tourists. Great strides are being made toward beautifying the downtown shopping district. Many Mendocino merchants have moved to Fort Bragg for more reasonable rents and the city's positive attitude that is supportive of commerce. This in no way diminishes Mendocino which attracts the higher-end retail businesses and discourages any chain stores or franchises.

The best deals here (and everywhere, really) are those that require sweat equity. Buying a cosmetic fixer also gives you an opportunity to put your mark on it. You have more immediate opportunity of making a profit on such a property! As we have many older sellers who have retired here and now are planning a move closer to the extended family, there are many homes available in this category. Remember: you calculate your return on investment on the amount of money you put down, not on the total price of the property.

The choice between a move-in condition home and a fixer should not drive the deal, however. The intangible is this: If you step into a home that is completely done and you fall in love, don't deprive yourself of owning a property for your own pride of ownership and enjoyment for future retirement. You might not make 5% a year on your investment in the first three years, but future value is most often derived from a well-located property with almost any degree of ocean-view or a property in the Valley with vineyard views. Besides, some things in life are better gulped than sipped. To renovate a property takes time and if you are busy in your work, time becomes more precious and if you factor in your earning power vs. the time and attention to remodel, you might come out ahead on the turn-key property. If you vacation-rent the property, you will be able to write off many expenses not necessarily deductible with a second home. (Ask me about this!)

Land is a much simpler formula. If you stand on it and you feel as if you are connecting to the land through the soles of your feet — look out! You are in trouble now! For example, the reasonably priced ocean-view acre is an almost mythical commodity. Ditto for an Anderson Valley view property. In the land category, these are the most treasured types.

Some quick land statistics:

Last year 43 pieces of bare land sold. Of those three were oceanfront, eight were ocean view and five were valley pieces with views. The rest were commercial or inland pieces.
In the past month, seven pieces of land have gone into escrow. Two of those are over $1.2 million and both pieces have been on the market in excess of 180 days.

Conclusion: The North Coast, valleys and inland areas, have a lot to offer to even to the most jaded city dweller. How many places, within two to three hours of a major metropolitan area, still have spectacular wild ocean vistas, heart-stopping pastoral settings, mild, maritime climate, and friendly natives? The Anderson Valley Pinot Noir wines are ranked as the best in the United States, attracting wine lovers from every corner of the country. The North Coast region is also known for its great restaurants, shops, two junior colleges, skilled physicians (who are here for the same reasons you love it); a symphony orchestra, a music festival, a film festival, two opera companies, great jazz, bluegrass, country & salsa music, and so many hiking and river/ocean kayaking opportunities that you'd be hard-pressed to try them all. The Santa Rosa Airport now offers commuter flights to L.A. and Seattle among other destinations.

I can predict that when this real estate balloon begins to inflate again, there will be those buyers who will look back and kick themselves for not stepping up and bargaining for that perfect cabin on Navarro Ridge or that chunk of land in the Anderson Valley. They will regret not buying that little yellow cottage with the big ocean view in Westport — it really was the perfect get-a-way.

If you find yourself "Mendocino dreaming," give me a call and let's talk. I work with mortgage brokers who know where to find reasonable money in today's mortgage maze. Something special is waiting for you, and working together we can make it happen.

Cheers!
Gio

October 2007

more newsletters

HOME | Current Listings | Meet Gio | About the Region

phone: 707-937-2101