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What goes up can come down

The Central Coast isn't immune to a housing downturn

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San Luis Obispo County is in the midst of a changing real estate market. While the Central Coast has been a seller's market for the last several years, it's now becoming more of a buyer's market or at least there's more inventory.

After plowing through several years of rapidly rising prices, the SLO County housing market has slowed. Central Coast home sales fell 14.1 percent from May 2006, according to statistics from the California Association of Realtors, and local Realtors have said that buyers are adopting a wait-and-see attitude.

Robert Kleinhenz, a deputy chief economist for the California Association of Realtors, said he didn't expect any improvement in the local housing market until next year at the earliest. Even then, his outlook is reserved at most.

"If there's going to be a turnaround in the market, it's going to be next year in all likelihood," he said. "I think we are going to be in this [downturn] for the balance of the year. We should see marginal improvement in activity in 2008."

That's a cold splash of water for people in the housing industry, but potentially good news for buyers who have worried that the market's rapid price escalation of recent years has left them behind.

According to market statistics compiled on www.slowatch.com, the median home price in the city of San Luis Obispo rose $4,000 from the first half of 2006 to the first quarter of 2007, but many other cities in the county saw the value of their homes plummet.

Arroyo Grande homeowners saw median home prices fall more than 20 percent in the last year, from nearly $800,000 to $635,000. In the north county, Cambria homeowners have experienced a similar situation, as the median home prices dropped from $810,000 to $642,000.

Currently, Oceano is deemed the most affordable town in the county with a median home price of $369,900. Compare that with Cayucos, which tops the list as the most expensive town in the county, with homes costing approximately $907,500.

The reason for the drop is related to the supply.

"If you look at the inventory for the cities, we're at the high-water mark," said Keith Byrd, a Realtor with Century 21 Hometown Realty and writer for www.slowatch.com.

According to Byrd, Pismo Beach saw 33 percent more homes appear on the market from May 1 to June 1 this year increasing from 98 homes to 130.

"We've got a lot of supply, and the demand has weakened, so something's got to give," Byrd said. "With so few buyers, sellers have to make their homes more desirable. Some can do that by dropping the price."

He said the market has become stagnant and there's less of a demand coupled with an increase in supply.

"Usually you say [that with] six months' inventory, the market is neutral. Less than six months is a seller's market, and more then six months is a buyer's market," Byrd said. "Some cities [in SLO County] are sitting on 12 months of inventory. If the inventory continues growing, I think we are gong to start seeing some price drops."

That may be fine and dandy for people wishing to buy soon, but it could also be detrimental to those who purchased property not that long ago.

"It's a mixed bag," said the association's Kleinhenz. "The household that has been living in a home for a long time, since 2004 and before, is probably in decent shape from the point of view of being able to afford it. The households that bought in 2005, 2006 might be in difficult circumstances."

Problematic situations are bad news for those tied down to a 30-year fixed mortgage.

"The basic driver for housing market is: Where's the economy? Right now, San Luis Obispo is just treading water," Kleinhenz said. "Mortgage rates are low, prices are high. That combination equals low affordability."

According to Kleinhenz, there's a 20-percent affordability rate for first-time buyers in San Luis Obispo.

Byrd said that rising interest rates and tightening lending standards are making it all the harder for people to afford homes in the county. He suggests that sales won't bounce back until people trying to sell their homes start lowering their prices.

"The biggest misconception about the [SLO County] housing market is people think it's going to rebound. Homeowners are a step or two behind the pricing curve," Byrd said.

"We're not going to be hit as bad as the valley because we have such a desirable place to live, but saying that doesn't mean we're going to shelter from price corrections because of supply and demand."

Obviously, the current housing climate is more complex than a temperature check or two can explain.

"SLO County is attracting a different demographic than the major metropolitan areas to the north and the south," said Craig Marlo, a loan agent with Stonecastle Land and Home Financial. "What I hear is that people moving to the coast are retired and/or looking for second homes. I think there's a different variable in this community that affects marketability."

Marlo added that he envisions a positive future for SLO County's real estate market.

"In my dealings with people who are seeking financial assistance and real estate agents, I feel very optimistic about our community."

Contact Staff Writer Kai Beech at kbeech@newtimesslo.com.

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