A Tale of Two Markets

In July 2008, 50 percent of single-family homes sold in Sonoma County were either bank-owned (REOs) or short sales, wherein the lender on the property received less than the amount due on the loan. In industry parlance, short sales are “REOs waiting to happen,” as these homes are generally in the foreclosure process. These are what are called “distressed sales.”

The REO/short sale home sales for the month had a median price of $320,000. Conventional sales had a median price of $530,000. My premise is, we’re dealing with two real estate markets that can’t be whitewashed with one brush.

People are always asking me how the market is and how the values of homes are holding up. If the median price of all home sales is used, the market is off 32 percent in value from a year ago, and 36 percent from the median price in July 2005, generally considered near the peak of the market. If the median price of conventional home sales is used in this comparison, the market is off just 8 percent from a year ago and 13 percent from the peak period of 2005. This is important information. We shouldn’t all be worrying that our homes are losing value and we’re getting poorer by the day, when it’s banks and lending institutions that are creating these huge discounts to get assets off their books and to get out from under being landlords of vacant and typically distressed real estate. They’re taking the losses, not the typical homeowner.

I never like comparing the general single family home market to the stock market, but I know there are a lot of stock portfolios that are off more than 13 percent over the past three years—just look at the financial industry stocks alone.

I’m finding appraisers aren’t taking the anomaly this REO/short sale “selling binge” is creating in the market into account. Because a bank desperately wants to sell an asset on my block, does it mean my home will sell for that much less or is worth that much less? I don’t believe so. I had a vendor in my house the other day, and he said, “This place will never lose its value, it’s in such a great location.” If there’s a transaction, and the appraiser isn’t making a distinction between these two markets, I believe it’s up to homeowners or real estate professionals to help with the analysis. The appraising industry is pretty rigid in its approach to value, and I don’t believe we’ve encountered a market such as this one in our lifetimes.

I’ve seen homes that were purchased in 2004 sell in 2008 for more than they cost in 2004 because they’re very desirable. I’ve seen a home offered at $4.2 million and one for $3.3 million receive offers within two weeks for the asking price because they were very desirable to the buyers. One might call these “discretionary” sales and purchases. They’ve generally remained unaffected by the “other” market for REO/short sale properties.

So my counsel to homeowners is that your home may be worth more than you’re thinking—or at least more than you’re being told by the media or the appraisal industry. At any time, a tiny fraction of the housing stock (approximately 1.4 percent in Sonoma County in July 2008) is available on the market. Does that small amount of activity dictate the value of my home when I’m not planning to sell for five years? Not to any degree I’m going to worry about. If, on the other hand, I want to sell next week and there are three bank-owned properties for sale on my block, well, I’m going to have to reduce my price to compete with those distressed sales. If I can hold on, I might rent the house out if I can afford to, as the rental market is strong right now. Otherwise, I’ll sit tight.

Don’t be distressed by the headlines. Your personal situation is likely extremely different from the bank that owns the house down the block. I suggest you speak with a local realtor who knows the ins and outs of the local market if you’re concerned about the value and marketability of your home. It’s really a tale of two markets.

Gerrett Snedaker is CEO/broker at Frank Howard Allen Realtors. The firm has seven offices and 120 real estate agents throughout Northern California’s wine country. Snedaker can be contacted at (707) 939-2009 0r e-mail at gsned@winecountrygroup.com.

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