SANTA BARBARA REAL ESTATE MARKET CONDITIONS

April 3, 2006

A Healthy Santa Barbara Real Estate Market

1 st Quarter 2005- 2006

The number of homes and condos sold in 1 st Quarter 2005 totaled 346 as compared with 305 in 2006, a 11.8% decline. The 1 st Quarter 2005 dollar volume of $489,520,613 compares to 2006 dollar volume of $437,158,005, also a decline of 10.7%

The number of new homes and condos listed for sale in 1 st Quarter 2005 was 567 compared with 725 in 2006, an increase of 27.9%. Similarly, the dollar volume of these newly listed homes and condos in 1 st Quarter 2005 was $1,005,581,807. compared with $1,223,274,133, in 2006, an increase of 21.6%

These two aforementioned statistics are receiving all the national and local press. It shows a lower number of homes and condos are selling and more homes and condos are listed for sale.

That being said, a look at the median sales prices show that despite record setting median sales prices in 2005, the 2006 results are even more impressive. Both January 2005 and January 2006 had a median sales price of $939,000. No change. In February 2005 the median sales price was $900,000. In February 2006, the median was $985,000., an increase of 9.4%. March was even more significant. The March 2005 median sales price was $877,000., while March 2006 median was $1,050,000. An increase of 19.7%. In mining this 1 st quarter median sales price data, it becomes clear that the homes sold above $5 million during this time frame is what has driven the median sales prices upward. This demonstrates that the high end buyers are leading the purchases in first quarter. Rising interest rates are not nearly as important to the high end, often times cash buyers of real estate.

A look at the median list price analysis for first quarter shows there are more entry level listings, a reflection of rising interest rates. The record setting 15 consecutive interest rate hikes is beginning to pinch the entry market across the country and in Santa Barbara too. In January 2005 the median list price was $1,150,000. In January 2006 the median list price was $1,050,000. A drop of 8.7%. February was the anomaly. In February 2005 the median list price was $1,079,000, while February 2006 median list was $1,179,000, an increase of 9.3%. March however was compelling. March 2005 median list price was $1,198,000 while March 2006 was only $970,000., a decline of 15.7% year over year, and the lowest median list price in over one year.

Homeowners who took advantage of adjustable rate mortgages, home equity loans and other creative financing to get into the super hot real estate market of the last several months are beginning to feel the pinch as interest rate hikes result in higher monthly payments. Despite homeowners desires to remain in their homes, the economics of their income relative to their increasing mortgage payments are pushing them to sell. As a result, we are seeing an increase of entry level homes and condos available for sale. This provides the entry level buyers more selection.

Santa Barbara , a resort community with an exceptional quality of life, is some of the most sought after real estate in the world. As a result, we are fortunate to have an active buyers market despite interest rates. While the high end buyers above $5 million is typically not effected by interest rates, they have a very low level of well priced inventory from which to select. The entry level buyers starting at $500,000., typically sensitive to interest rates, are still out there despite raising rates. While there are homes and condos on the market, both high end and entry level buyers who are ready to buy now are not responding to property that is overpriced relative to the comparable sales. Despite this however, we continue to see many new listings are not priced well relative to comparables. The few properties that we do see priced well, go into escrow immediately, some with multiple offers, providing the advantageous position of the seller to have an accepted offer and a back up offer or two.

There has been so much press about a softening real estate market, but this market is not softening, it is normalizing. A normal market is defined as one where a home can be made available for sale, and buyers will have the opportunity to think through perhaps the single largest purchase of their life and conduct appropriate due diligence on comparable sales in preparation for making an offer. This market is healthy relative to the overheated market of the past several months when buyers felt compelled to make an offer immediately for fear several other offers will beat them to the purchase.