Sunday, March 1, 2009

Monterey County, CA housing market outlook tentatively rosy

Foreclosures, bank-owned homes, short sales and other distressed properties account for the bulk of home sales in large swaths of Monterey County, CA. That's depressing prices and charging sales.

by Broderick Perkins
© 2008 DeadlineNews.Com
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Deadline Newsroom - Investors are testing the waters. Multiple offers aren't unusual. Interest rates are cooperating. And housing affordability is three times better than it was a year ago.

Monterey County area real estate experts are beaming with hope that early 2009 housing market indicators are harbingers of a real housing market recovery.

With that hope also comes a warning for fence-sitters: Prices are already as low as they've been in 10 years. Further delaying a home buy, with hopes for bottom market prices, could backfire.

It's virtually impossible to pinpoint market bottom until after home prices are already on a steady rise, the experts say. Should prices bounce off the bottom and move up fast, some buyers could be quickly priced out of the market.

"Economists seem to believe that half way through 2009 we'll see some changes that could mean the housing market will swing more toward a sellers market," says Jean Manner Schwimmer, a past president of the Monterey County Association of Realtors.

"I'm not so sure it will happen that quickly and it's not that people should move too fast, but a whole bunch of people may be moving too slowly. Instead of trying to predict what might happen, people should be trying to get an interest rate and (mortgage) payment they are comfortable with. It's time to move," added Schwimmer, also a Realtor with Coldwell Banker-Gay Dales in Salinas.

With foreclosures, bank-owned, short sales and other distressed properties accounting for the bulk of home sales in large swaths of the county, depressed home prices are already charging sales.

Faster sales, shrinking inventories, low prices

Closed sales of single family homes, county-wide, zoomed in January this year to 283, more than triple the 93 sales the same month a year ago, according to Richard Calhoun, a broker-owner of Creekside Realty in San Jose who tracks sales throughout Northern California.

They are also selling faster and for a greater percentage of the asking price compared to a year ago. Inventories are shrinking too -- 1991 single-family detached homes were listed in January this year, compared to 2,381 the same month a year ago, Calhoun reported.

Sales are up because some homes cost less than they did a decade ago and they are nearly three times more affordable than they were a year ago.

"What we are seeing is that prices and activity are reflective of 1999. Some 85 percent of the market in the Salinas area is an REO (bank owned) or short sale. So what we are seeing is the number of sales going high as the median price goes down," said Kim DiBenedetto, the current president of the association.

Calhoun found some areas in Monterey County with distressed properties comprising nearly 100 percent of sales.

It's no surprise then, that in Monterey County, the median price of single-family homes in closed sales was $230,000 in January, down from a $500,000 median just a year ago January and down from a peak of $799,500 in August of 2007.

The January 2009 median for single-family homes is also lower than the $310,000 median in January 1999 -- ten years ago.

Likewise, the much smaller condo market came in with a $74,000 median price in January, compared to $116,000 in January 1999, according to Calhoun.

The low prices, coupled with low mortgage interest rates (the fixed rate average was at or below 5.25 percent in January, according to Freddie Mac) has created a boom in affordability.

Affordability luring investors

In Monterey County, 58 percent of households could afford entry-level housing in the region, up from 21 percent just a year ago, according to the California Association of Realtors (CAR).

CAR says first-time buyers typically purchase a home equal to 85 percent of the prevailing median price. In Monterey County, in the fourth quarter of 2008, the minimum household income needed to purchase that $265,700 entry-level home was $52,200, based on an adjustable interest rate of 6.02 percent and assuming a 10 percent down payment. The monthly payment including, taxes and insurance was $1,740 for the purchase, according to CAR.

A year ago, based on an adjustable interest rate of 6.21 percent and assuming a 10 percent down payment, a $591,200 entry level home came with a $3,940 monthly payment and required a qualifying income of $118,200.

Current market conditions, including interest rates and median prices both lower than CAR's affordability calculations, likely push affordability levels even higher.

That's not lost on investors.

Real estate sales people say investors, including second-home and vacation home buyers, are leading the way, returning to the region attracted by the prospect of bargain basement purchases with enough rental income cash-flow to pay the mortgage.

"Some of them are repositioning wealth because of loses in the stock market. They are the type to come in now and get the best properties. Some condos are less than $100,000 in Salinas. Rent them out and the cash flow totally makes sense now," says DiBenedetto, also a Realtor with Coldwell Banker Del Monte Realty in Carmel.

"In Monterey we see some properties in the $400,000s. We haven't seen that in a very long time," she added.

Schwimmer said priced-right properties in good condition in the $250,000 to $350,000 range can attract multiple offers and a fast sale while other properties priced too high languish unsold.

Sales are slower, but picking up in the higher-end markets of Carmel and Pebble Beach, where values have slipped only to 2004 levels. Even with the slippage they markets still reveal 11-year appreciation rates of 273 percent and 209 percent respectively.

How to cash in

"You can't get that kind of return in the stock market or anywhere else. Fifteen homes sold in Carmel since the first of the year, after the seasonal lapse. Half were for under $2 million and half were for more than $2 million. That's very good activity and a good sign for the market," said DiBenedetto.

Real estate experts advise first-timers and others looking to buy to get both mortgage money in the pipeline and experienced representation on their side if they want to beat what could be a spring rush.

"You have to come in totally preapproved (for a mortgage). Not just prequalified. If you have competition you need to stand out," said Schwimmer.

She added, "And, if you are going to be in this, with short sales and foreclosures, you need help navigating the market. Everybody is looking for a good deal and it's hard to get a good grasp on distressed properties. You won't know how to do this without the guidance of a Realtor who has experience," said Schwimmer.

Broderick Perkins operates a digital real estate news service, the DeadlineNews Group. Contact him at

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Broderick Perkins, an award-winning consumer journalist, parlayed 30 years of old-school journalism into a digital real estate news service, the San Jose, CA-based DeadlineNews Group -- DeadlineNews.Com, a real estate news and consulting service and Web site and the Deadline Newsroom, DeadlineNews.Com's news back shop. Perkins is also a National Real Estate Examiner. All the news that really hits home from three locations -- that's location, location, location!

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