After weathering the effects of a faltering economy, the real estate industry is reporting an increase in the number of sales closed.
Real estate has a new profile. After weathering the effects of a faltering economy, the industry is reporting an increase in the number of sales closed, and even though prices are still low, it appears to be poised for a rebound.
“We’re witnessing early stage recovery, ” says Sherry Chris, president/CEO of Better Homes and Gardens Real Estate, based in New Jersey, who looks at the national picture. She reports that 40 percent of last year’s inventory was distressed, but today, although the inventory is low, homes up for sale as the result of foreclosure are down to 29 percent and headed in the right direction. “As a company and an industry, we’re cautiously optimistic that the start of the recovery is here,” she says.
She tempers that statement with concerns about an unbalanced market, however, and explains that new listings should equal the sales taking place. But in today’s market, they aren’t keeping pace with the number of people looking for new homes. In addition, echo boomers (children of baby boomers), who total 78 million, should be purchasing their first homes, but that’s not happening. Instead, it’s investors with cash who have the edge, leading to a skewed market in which they’re buying income property. “It’s significant here, and it is across the country,” says Chris. As a result, “Rents have started to skyrocket.”
She believes it’s a trend that hurts the regular real estate market, because it prevents people who should be looking for primary residences from doing so. “What we really want is people buying owner-occupied homes to live in,” she says. She cites statistics from the National Association of Realtors that show the first-time homebuyer market at 34 percent, which is too low, although it is up from 32 percent last year and improving.
Ups and downs
Marin, Sonoma and Napa counties don’t necessarily follow national trends; nonetheless, the same pattern is emerging in some areas. In Santa Rosa, Martin Schwartz, a broker associate with Artisan Sotheby’s International Realty and president of the Santa Rosa Chapter of Realtors, observes that although sales are up, inventory is low and, he says, “It creates a little bit of a frenzy.” Only a month’s supply of homes was on the market in June, and he was seeing multiple offers on homes listed at the entry level up to $600,000. He expects the competition to drive up the appreciated value.
Among potential buyers, he’s encountering people in the market for first homes and some who want to get back into owning property after losing their houses in the downturn. He recently sold a home in Santa Rosa for $290,000 to first-time buyers, but they had help from their parents, which gave them more cash and allowed them to make a 50 percent down payment rather than the usual 3.5 percent that Federal Housing Administration (FHA) mortgages now require.
“Sonoma County is still a desirable place for people to live,” says Schwartz, but with investors eager to take advantage of low prices, “It makes it tough for first-time buyers to compete.” One of the challenges is the need for buyers who are borrowing money to get an appraisal on their desired property. Although it’s a reasonable requirement, it takes time because, though some savvy appraisers do take current conditions into consideration, more weight has to be given to sold properties. “Appraisers aren’t necessarily on the cutting edge because they’re dealing with what’s happened,” says Schwartz. That puts buyers who need financing at a disadvantage when they’re up against investors who have easy access to cash. Cash sales don’t require appraisal contingencies, so deals can close quickly, which is appealing to sellers but can shut out buyers seeking homes for personal use.
Low inventory and an influx of investor capital are also factors in Napa County. “The economy isn’t keeping young people out of this market at all,” says Carolyn Roberts, broker/owner of Coldwell Banker Brokers of the Valley in Napa. “What’s keeping them out of being able to purchase is the lack of inventory and competition from investors snatching up all the modestly priced homes. …Right now, a larger percentage than normal of our closings are cash transactions because of all the investor purchases,” she says. She also observes that competition between first-time buyers and investors in the lower price range, under $600,000, is resulting in multiple offers.
Roberts believes inventory is low because sellers are waiting for the market to stabilize and prices to go up before putting their properties up for sale. Even so, the volume of sales is increasing. Napa Valley is a popular place for people looking for homes away from their primary residences, and Roberts notes that sales of luxury properties and second homes were up in the first half of the year. “Napa remains a global destination and a very attractive place in which to invest,” she says. As a result, buyers who want to take advantage of good prices and low interest rates find it an excellent time to buy, and some are even purchasing houses now with the intent to use them as retirement homes later.
Lifestyle leads
Chris, of Better Homes and Gardens, believes home buyers have changed in recent years. “People aren’t just buying a house anymore. Today, people are, first and foremost, thinking about lifestyle and community,” she says. She considers Napa, Sonoma and Marin counties to be three of the best lifestyle counties in the country, so when people come here, they’re looking for something special.
In Healdsburg, it’s Wine Country lifestyle, where people can get away from the busy city environment and enjoy the restaurants, wineries and parks. “They like the vineyards,” says Lisa Albertson of Frank Howard Allen Realtors. She says buyers are attracted to the area for its physical environment, but they also find it appealing because it’s family-oriented, with some families having roots in the community for generations. “Healdsburg has small-town charm with amazing food, wine and shopping, and you can always find parking. Another plus is that we have no traffic and very little crime. I think people want a piece of that,” she says. As a result, buyers, such as a recent client from Alaska, are purchasing houses that they plan to use as vacation homes for part of the year and short-term rental income property the rest. And, as in Napa, some are buying second homes with plans to eventually retire to the area.
Like other areas, however, insufficient listings are a problem. “We’re lacking inventory in Healdsburg. Now is a perfect time to list,” Albertson says, and in keeping with the current trend, she sees investors as major players, particularly those who are taking advantage of short sales and foreclosures. “There’s a lot of flipping going on,” she says.
The new activity leads to improved sales figures, and Albertson is confident that real estate is on the upswing. She’s getting a substantial number of inquiries, and many of them are the result of people doing online searches for homes. In June, she had five properties in escrow and says, “Last year was a tough year. This year is looking better.”
Location counts
In central and southern Marin County, location is paramount and people are willing to pay for the right one as long as they get value for their money. In addition to the property itself, that means excellent schools, an easy commute and panoramic views.
Tracy McLaughlin, owner of Pacific Union International/Christie’s Great Estates in Ross, says most of her listings and sales are more than $1 million, and the majority of buyers are purchasing primary residences. Her clients include people who are cash buyers as well as those who are able to get mortgages, and she’s seeing an increasing number of Asian buyers and bilingual agents representing clients in Asia.
She describes the market as “price-sensitive” and says, “If there’s perceived value, a home should sell. It’s all about price. If people want to sell, prices must be in alignment with their expectations or the house simply won’t sell, no matter how beautifully styled it is.”
She observes that Marin residents who want to move up are driving the market. “Ninety-two percent of Marin is buy-up,” she says. “Most or all are looking for good indoor/outdoor living, meaning the kitchen/family room connects to the yard and pool. Great schools are also at the top of buyers’ lists.”
She adds that prices are still near the bottom, relatively speaking, but the volume of sales is up significantly, which shows confidence in the market. “The most stable markets are the Ross/Kentfield and Tiburon/Belvedere areas, as they have top-rated schools and are typically the first to recover,” she says.
On the Tiburon peninsula, “Our schools are the best, and our proximity to San Francisco is incomparable,” says Abbi Fox, an agent at Frank Howard Allen’s Tiburon office. She observes that buyers in Marin tend to be people already living in the county, who are either downsizing because their children have left home or moving to larger homes because they have growing families. For the younger buyers, “Schools have become a greater priority,” she says, and affordability is also important.
She finds that higher-priced properties are starting to move as long as they’re priced fairly. She points to a home listed for more than $4 million that languished on the market until the seller lowered the price sufficiently, which resulted in four offers and a cash sale. Although some people are paying cash, Fox says most of the buyers she sees are borrowing money now that interest rates have come down. “If there’s a bonus to buying a house today, it’s the mortgage rate. You have to qualify, but that’s a good thing,” she says.
The difficulty in Marin County is the inventory of houses priced at less than $1 million, which Fox describes as almost nonexistent. She recently found a brand-new house for just under $900,000 for clients, but instead of limiting themselves to southern Marin, they went north to Terra Linda, a community in the well-regarded Dixie School District, with a longer but still relatively easy commute. It might lack southern Marin’s views, but it fit the family’s lifestyle and was more affordable for them. The price tag was still high, but people who seek homes in Marin know it’s expensive. “First-time buyers who come to Marin have the income,” says Fox.
Homebuyers who feel comfortable with a rural lifestyle and don’t mind a long commute can head west, away from the Highway 101 corridor, in search of lower-priced homes. “You can get a great deal in west Marin right now,” says Norine Smith of Coldwell Banker in Mill Valley. In keeping with the trend, the sales volume is up and prices are low, but in contrast to more accessible areas of Marin, buyers in the lower end of the market can find homes more easily. Smith points to a two-bedroom, two-bathroom house in Forest Knolls that a school teacher’s family recently purchased for less than $200,000. They were delighted to find a house that fit their budget. “They’re so happy,” she says.
Smith has a wide range of listings, with prices starting at $215,000 and going up to $2.4 million for a beachfront house in Stinson Beach, which is one of a kind but isn’t attracting any interest, and she recently sold a house for $525,000 that was owner-financed. She also is seeing a few investors looking for deals, but for the most part, people don’t consider the west Marin communities because they want to avoid driving a long distance. “The commute is too far and the gas costs too much,” she says.
The road to recovery
In a changing industry, realtors find the unpredictability of the market puzzling. Fox sees fluctuation in all price ranges and says sales can pick up substantially one week and just as suddenly slow down the next. “Real estate, to us, has become more like a wave of activity and then inactivity. We’re perplexed,” she says. She observes that many potential sellers are hesitating because they worry it’s not a good time to sell a house, but she says, “If you truly want to sell your home, you need to be on the market.” She advises sellers who receive offers they consider too low to make a counter offer. “I tell all my clients to make an offer,” she says. It’s a starting point, and the goal is to get the buyer and seller closer together.
Chris believes that with historically low interest rates and properties priced low, it’s an ideal time to purchase property. “Why wouldn’t you buy a home now?” she asks. Her concern is that in 12 to 18 months, interest rates could go up and inflation and prices could also rise, making ownership more difficult for those who wait.
Meanwhile, she sees two challenges. The first is creating a scenario with fair and equitable lending rules so responsible buyers can qualify for mortgages. The second is resolving a logjam in the middle market, which affects people who want to buy new homes but can’t because they’re unable to sell their current homes. “If you can find solutions to those problems, you’re off and running,” she says.
She considers the current situation extreme, but observes that the market preceding it was extreme as well and resulted in a crisis that she attributes to relaxed lending guidelines as banks raced to bundle housing-backed assets. “What I’d like to see is a continued interest in sales at a moderate level, but it’s impossible to predict,” Chris says. “If the market continues to correct itself on its own in a very conservative way, it’s not a bad thing.”
Although real estate appears to be recovering, nothing’s certain. Schwartz describes the business as an art as well as a science, with the scientific component looking at facts and empirical evidence, while the art is more intuitive and requires developing a feel for the market. “You have to trust your intuition that you’re right,” he says.
What we’re not likely to see is another bubble like the one in 2005. “There’s more regulation and caution in the industry now,” says Schwartz. Lending is a difficult process, but for the most part, the market is more stable. “At this point, there’s more optimism.” He hopes to see gradual appreciation, which he considers helpful to the economy in general.
Meanwhile, despite the problems the industry has yet to overcome, potential buyers are turning out for open houses, consumers are starting to invest in real estate again and properties are moving. From all appearances, residential real estate is on its way back.
