What Will Napa Valley's Road to Real Estate Recovery Look Like?

There's a saying in the tech world that goes something like: "...the next big thing won't be as good as the last big thing." It was used in reference to the dot.com bomb back in 2001 to predict Silicon Valley's much anticipated recovery following an unprecedented high/low experience. Turns out they were right. This 'realist' wisdom applies to the current real estate economy as well.

A recent view of Napa Valley's incredible equity ride and current decline looks like this:

With median values reversed to 2002-2003 levels, it is unlikely Napa County homeowners will see a trajectory or apex similar to 2005-2006 anytime soon. Counties like Napa whose real estate values have historically benefited by limited growth policies (supply) and consistent demand typically get the lion's share of equity growth (when the state's economy isn't in the tank). However, despite the fact that Napa Valley remains a destination real estate market, and the county's slow growth policies haven't changed there are simply too many economic issues weighing down the other side of the scale- making the supply/demand factor irrelevant in the short term. Therefore, real estate values, which were relatively shielded by past economic downturns by this supply/demand factor, cannot stand alone in the current climate amidst significant unemployment and the continued flow of foreclosures and distress sales.

Better news is on the horizon!  Recovery begins when distress sales no longer determine the value of a property/neighborhood based on the level of desperation of a seller or by how much (little) a bank will settle for on a loan balance owed.  Napa County's absorption rate of distress sales has been consistent compared to other cities and counties that have been devastated by a compounding tsunami of foreclosures without a buyer in sight. Napa County buyers are buying, albeit at deep discounts, and they're buying at an absorption rate that is keeping pace with the inventory of distress offerings. As of early May approximately 25% of the 660 active residential listings were short sales or lender foreclosures. Here's the kicker: there are 327 listings currently in escrow (in addition to the 660 that are still active), and of these pending sales 234 of them- 71%, are distress sales. At this pace it appears Napa County will soak up the inventory of short sales and REO's like a Bounty paper towel soaks up water.

Another telling statistic speaks volumes: Of the 327 properties in escrow, the average asking price per square foot is $217. In comparison, those 660 properties standing around the dance without a willing dance partner have an average asking price per square foot of $504.

"One swallow does not a summer make."- Aristotle

In and of itself Napa Valley's impressive absorption of distress sales does not make a recovery, but it's a darn good start, and it's a head start on many other communities still drowning and suffering blight. Napa's recovery may not be a trajectory like the past but there is every reason to believe the recovery will come sooner.

-Katie Somple