Napa city home values appreciated just 2 percent in 2006, the smallest average property value gain in 10 years.

It may be a reality check for local homeowners. Compared to the double digit appreciation of recent years, 2 percent may seem stagnant.

At the same time, in 2006, the number of units sold declined 26 percent -- from 1,179 to 866 -- the lowest number since 1989.

Two percent is a marked contrast to a decade-long run of skyrocketing appreciation where the average city home price rose a whopping 232 percent.

Adjusted for inflation, it's still a 146 percent increase.

Homeowners can only wonder, was 2006 a tipping point in local real estate values?

Skip Keyser, a local Realtor and Skip Keyser Realty Inc. vice president, analyzed 17 years of data from multiple sources. Keyser said "demand and a lack of inventory" contributed to the decade of dramatic appreciation.

"Napa remains a highly sought after residential market and demand remains strong, albeit buffered by relatively low wages and the high price of homes," said Keyser.

The city's lack of inventory was a result of several factors, he said, including "slow growth movements and increased pressure on developers to bear the increasing financial burden of new home construction," Keyser wrote in an e-mail.

Factors outside Napa, or even California, also impacted the local market. Energy costs have risen, construction costs increased after Hurricane Katrina and demand for materials in China have also picked up, said Keyser.

Mike Silvas of Morgan Lane Real Estate said Napa's location and economy factored into rising appreciation.

"Napa lagged behind the rest of the Bay Area in appreciation in those early years, and part of the dramatic appreciation is a catch-up," said Silvas.

"Napa has been discovered as a lifestyle and a second home destination," said Silvas. "The demand exceeded the supply and drove the prices up. That's a natural market phenomenon.

"The low and no-growth factor in the community makes the prices go up even more," said Silvas.

Chuck Sawday is a Real Estate Broker with Pacific Union GMAC Real Estate.

Sawday attributed part of the city's appreciation to interest rate levels.

"More people were able to buy homes because of low interest rates. That pushed a whole new group of people into buying their own home. Then, the person who just sold moves up," adding to more sales, he said.

Robin Rose, Coldwell Banker Brokers of the Valley general manager, said new mortgage products and lender competition have also spurred activity.

"(This) resulted in increased money available for buyers," said Rose.

ReMax Realtor David Barker sells primarily in American Canyon. He identified 2001 as a pivotal year for real estate.

"What really took the market off was after Sept. 11 when the Federal Reserve dropped (interest) rates. That kick-started the housing market. Money was very cheap. It was easier to get a loan."

Even with an overall decrease in units sold in 2006, Rose looks at the big picture.

"As with any investment there are fluctuations in the market," said Rose. "So, while sales did decrease, 2006 represented the third-best existing home sale market on record. Remember that 2005 was the record year, so to see a drop off from record levels is not a surprise. The smaller price increase was not unexpected after years of double-digit increases.

"Real estate is still the best investment," Sawday added. "Anyone who can, should buy (his or her) own personal residence."

The market is looking up, Sawday said. "January of 2007 is busier than normal. That bodes well for our spring market which is always our most active.

"In the next five years, I expect reasonably good appreciation, and 10 years from now -- who knows?"

Sawday pointed out that a large transfer of wealth will ensue in the near future as parents of baby boomers pass assets to their children.

"Will property continue to appreciate?" asked Sawday. "Yes, but not at (double-digit) rates," he said.

For 2007, Keyser projects "a return to a more 'normal' residential housing market in Napa, 'normal' being defined as high demand and increasing prices which depends on various factors including the continued viability of our wine industry monoculture."

And Napa home prices for the next 10 years? "The same thing California has seen since the end of World War II in 1945 -- increasing housing prices," said Keyser.

Barker said he thinks single digit appreciation is more realistic for 2007 and beyond in American Canyon.

"We're going to see growth but certainly not double-digit growth for the next three to five years," said Barker. "It's still a good market. The buyers can take their time and negotiate a good deal. Sellers still have done well in most cases. I think this is a good time to buy or sell."

"It appears that some of the buyers that have been waiting to see what would happen to the market have decided not to wait any longer," said Rose.

"We have more than a dozen agents that have been involved in multiple offers during the past two weeks. Napa Valley continues to be a great market and we expect that to continue through 2007."