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A Silver Lining

Author: Karen Hart
May, 2013 Issue

North Bay realtors are seeing a change for the better.

The real estate market is cyclical by nature, and the cycles are never regular or predictable. Thirteen years ago, real estate prices were going through the roof across the North Bay, and there was unprecedented growth. People were becoming millionaires from selling their homes. Then, about six years ago, the market bottomed out, and recovery has been in low gear ever since.
Nationwide, people have traditionally moved about every five years, but today, it’s every 13 years. While local headlines report that home prices are moving up, there’s not a lot of incentive, especially if you have very little equity in your home or (worse) you owe more on your home than it’s currently worth. Homeowners who don’t need to move are still opting to stay put. Nevertheless, those working in the North Bay real estate market are seeing a change for the better. “It’s an interesting time,” says Jeff Collaso, owner of Century 21 NorthBay Alliance in Marin. “We’re on the cusp of change.”

Home values on the rise

Statistics show that home sale prices are on the rise. Nationwide, home prices (including distressed sales) increased by 9.7 percent in January as compared to last year, according to CoreLogic, a residential property information service. CoreLogic also reports that, including distressed sales, California was ranked fourth (behind Arizona, Nevada and Idaho) among states with the highest increases in home price appreciation. What’s more, in February the median sales price of homes in Napa, Marin and Sonoma counties was up more than 20 percent, according to Bay Area Real Estate Information Services (BAREIS).
“The underpinnings of a stronger market are in place now,” adds David Bulgerin, manager, Coldwell Banker Brokers of the Valley in St. Helena. “The market has been coming back for the last year, but it seems currently to be hitting a fever pitch due to the imbalance caused by strong buyer demand and a relatively low inventory of homes for sale. You can sense the activity in the urgency of buyers and stress experienced by the real estate agents who are trying to get them into homes. You can see it in the double-digit increase in the median sales prices over the last year. And you can definitely see it in the eyes of sellers, many of whom are receiving multiple offers from buyers desperate to purchase.”
“We’re coming back,” says Pat Provost, owner and partner for Century 21 NorthBay Alliance in Santa Rosa. “Jobs are coming back and construction is starting.” Limited job recovery will limit the speed of the housing and real estate market recovery, she points out, but all levels of real estate are moving in Sonoma County and properties all along the western half of the state are doing well.
“Higher-end real estate is back. Silicon Valley and San Francisco are hot markets. There’s been a big improvement with higher-end real estate,” adds Glenn Gephart, owner and partner, also of Century 21 NorthBay Alliance in Santa Rosa. (See “Living It Up.”)
In Sonoma County, houses priced from $350,000 to $700,000 get immediate attention and often receive multiple offers. Marin County houses ranging in price from $400,000 to $900,000 are moving. In Napa County, houses priced at $600,000 and under receive multiple offers, and homes priced at $700,00 and higher are getting immediate showings.
Nevertheless, inventory is low and buyers must be prepared to be competitive. “The inventory in Sonoma County is extremely tight,” says Karen Moyers, an agent for Bradley Real Estate in Santa Rosa, “and it’s driving prices up. It’s a steady increasenot a spikeand we’re seeing multiple offers at a lot of different price levels.” According to Moyers, it’s not uncommon to see offers coming in that are more than $2,000 to $30,000 higher than the listing price and anywhere from two to 40 offers on the same property.
There’s some new construction, says Provost, but we’re gaining more people than housing. “Right now, if no other houses come on the market, we’d be out of homes in six weeks,” says Gephart.
North Bay real estate agents are also seeing a rise in all-cash sales. According to Moyers, all-cash sales are driving the market up because they don’t require an appraisal on the property. “I have four deals in escrow and three of them are all-cash deals,” says Moyers. “The lower price listings have a greater percentage of all-cash buyers, but now we’re seeing it at the higher levels as well.”
The largest group of all-cash buyers appear to be investors who plan to rent out the properties or fix them up and resell them. “We’re also seeing a rise in owner-occupied, all-cash buyers, who make a loan after the close of escrow,” says Moyers. “These buyers are able to take advantage of the mortgage interest deduction under IRS rules.”
“In Napa, we’re experiencing a lot of cash offers,” says Bulgerin. “In a multiple-offer situation, often 20 percent of the offers are in cash for homes priced under $500,000.”

The market crash

On a national level, the real estate crash officially began in September 2005, though its effects weren’t felt in the North Bay until about June 2007. “We felt it then, and it became clear we were in trouble,” says Provost, who’s been in the business for more than 30 years. “I’ve been through three real estate crashes and this has been the longest, deepest and hardest.”
So why did the market crash?
Before the crash, traditional underwriting practices were abandoned and the market cracked, according to Gephart. Buyers were able to select from a range of pick-a-payment loans and many got into trouble. There were traditional 30-year loans, interest-only loans and negative-amortization loans (meaning homeowners were making house payments that were less than the interest owed on the mortgage). What’s more, some loans were made with a clause that many buyers overlookedpayments doubled after a period of time, and homebuyers simply couldn’t handle it when those increased payments came due.
The result was a deluge of distressed properties on the market. “Three or four years ago, 75 percent of the homes on the market [in Sonoma County] were distressed,” says Gephart. “Now we’re seeing a marked decrease in distressed homes.”
In addition, traditional sales with homeowners who’d built equity in their homes dried up, says Collaso.
According to Bulgerin, the biggest change over the last five years is that the local real estate market has worked through a substantial portion of its inventory of distressed and underwater homes. “Distressed sales have been institutionalized, in that the banks now have their short-sale and foreclosure processes in place and the bugs ironed out,” he says. “Real estate agents are now more used to transacting short sales; and underwater sellers are much more trusting of the short-sale process now that the banks know what they’re doing. And the state has passed anti-deficiency legislation, protecting most sellers from continuing liability after a short sale.”
The upshot is that these types of properties are no longer such a drag on the real estate market, says Bulgerin, because they’re moving on-and-off the market more quickly and at market value, not the deep discounts that were seen as recently as last year.
“We have lots of qualified buyers, the best interest rates we’ve ever seen [3.56 percent, which is a historic low], and huge affordability in Sonoma County. Sixty to 70 percent of people can afford to buy right now, but the lack of inventory is rampant in all three counties,” says Provost. “This is a very frustrating scenario for everyone involved in the real estate industry!”
The current state of the real estate market presents an enigma, according to Provost. There’s a pent-up demand for housing…and no product.

A good time to buy

Nevertheless, it’s a good time to buy real estate. “Real estate is on sale,” says Gephart. “It’s a wonderful opportunity for the first-time buyer. If there’s ever a time for a parent or grandparent to help out, it’s now.”
For example, to get into a house in 2007, you’d need a down payment in a six-figure amount. Today, you can get a house [in Sonoma County] for $350,000 with a Federal Housing Administration (FHA) home loan with as little as 3.5 percent down. “For $15,000 to $20,000, you can help your child or grandchild get into a home,” says Gephart.
“We’ve had a number of transactions where parents or grandparents are providing money for a down payment to purchase homes,” adds Bulgerin.

What to expect

What should you expect if you’re in the market to buy a home? “Understand the feeding frenzy you’re getting into,” says Bulgerin. “Consult with an active real estate agent who can prepare the buyer for what they need to compete in this environment and the issues that might crop up.”
According to North Bay agents, buyers are likely to encounter a number of matters while preparing to make an offer on a home and navigating the sales process. “You definitely want to craft your offer to meet the seller’s needs as closely as possible,” says Bulgerin. “Sometimes sellers want to stay in their home for a short period of time to ease their transition to a new property.”
As a buyer, it’s also a good idea to make your best possible offer first. “You can’t assume there will be a counter offer,” says Moyers. “Make your offer clean and simple. If you have a loan, have your preapproval ready. If you’re paying cash, have proof-of-funds in hand. Preparation is the key.”
If you’re selling your home and want to encourage multiple offers, make sure your home is in the best possible shape and is priced well, says Moyers. “That means giving detailed attention to curb appeal; plant blooming flowers and cut out any unsightly shrubbery. The interior of the home should be free of clutter and made to look fresh and inviting. Staging can dramatically increase the marketability and sales price of a home.” According to Moyers, a fresh coat of paint, and cleaning the carpets can go a long way. “I usually recommend doing a pest inspection and completing repairs prior to putting the home on the market. This reassures buyers of the home’s condition and minimizes further negotiation at the end of the inspection period,” she says.

The future of real estate

What can you expect to happen in the real estate market this year? The California Association of Realtors is forecasting moderate growth in both units sold and median price.
“Napa County could be positioned to do better than that,” says Bulgerin. “We have a very low inventory of homes for sale and a vibrant North Bay economy that’s churning out qualified buyers. Consumer confidence is good and getting better, while mortgage interest rates are still at historic lows.” According to Bulgerin, recent price appreciation trends are building homeowner equity to a point where there are fewer underwater properties and more owners who can sell their homes at a profit, not have to deal with the stress of a short sale and have money to move on with their lives.
Collaso expects the median to go up 10 percent in Marin. “There’s just no inventory, but I suspect more sellers will be willing to put their homes on the market. Before, most homes were put on the market by owners who had to sell, he says, but now more and more owners are putting properties on the market because they see values going up and they want to sell—and that will drive the market over the coming months.

A good investment

Given the nature of our current economy, is real estate still a good investment?
George Houghton, a certified public accountant in Santa Rosa, did the math for Californians in his book, Unleash the Power of Real Estate. His advice to would-be buyers is to add a zero to the value of property every 30 years, even in the current economy.
For example, in 1940 an acre of land in Sonoma County was $1,000 an acre and in 1970 an acre of land was $10,000. In 2000, 30 years later, the going rate was $100,000 per acre. “It’s not exact for each year, but it’s the right direction when accounting for inflation and a population increase. If you knock on a real estate agent’s door and ask what an acre of bare land would cost in the North Bay, the price is north of $100,000, he says.
Inflation causes the dollar price of real estate to soar. “It’s not true that the house is worth more in value, it’s that inflation shrinks the dollar and the price of the house goes up.”
Traditionally, California’s population steadily increases, says Houghton. “The price of real estate has gone up not only based on inflation, but also on population pressure.”
However, in the last few years, population hasn’t increased as quickly. While current political problems are driving businesses (and jobs) out of the area, Houghton predicts California’s mild weather and sunny skies will eventually draw people back to the North Bay. According to Houghton, the population is sure to increase again, and with the future of inflation, real estate is a good buy, he says. “In the past 50 years, we’ve never seen interest rates at this level. It’s time to buy.”

The silver lining

While the past six years or so have been tough to endure, in terms of decreasing housing prices and inventory levels, most North Bay real estate agents agree there’s a silver lining to the cloud that’s been hovering over the real estate market: The cyclical nature of real estate allowed for a correction process. “A correction is necessary when housing becomes unaffordable for most people,” says Gephart.
As a result, the real estate market is getting back on track. “Short sales are slowing down a bit, foreclosures have declined significantly and traditional sales are popping up again,” says Collaso. “It’s hard to go through a downturn, but it’s made us all wiser and more prudent. That means being careful with money, the pricing of homes and expense outlays [for both agents and sellers before putting a home on the market].”
According to Collaso, those in the business are now more knowledgeable about transactions. “Before the crash, a lot of agents didn’t want to mess with short sales, but now everyone has the capability,” he says. “It’s made everyone stronger. These corrections make those of us in the business better at representing the consumer in a real estate transaction. We have valuable expertise to offer.”
Like every other industry, it can be healthy for each market to go through its cycle. This ebb and flow can be positive, and lets the market grow, collect itself, catch up and, eventually, grow again. So where will the real estate market be in the years ahead?
“I don’t know,” admits Collaso. “It feels like the business is better than I expected. It’s a hard market we’ve endured. I’m cautiously optimistic, but I have agents who are very optimistic.”
“This upswing in business right now is more pronounced than I’ve seen in a long time,” adds Bulgerin. “We had a radical downturn between 2008 and 2010, but people are really excited about the real estate market these days.”



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