County home prices, sales fall in October

Sonoma County’s housing downturn deepened in October, when sales tumbled to a 16-year low and the typical house sold for nearly 9 percent under a year ago, according to The Press Democrat’s latest real estate report.

Only 233 homes sold in October, well below the historic average for the month, despite some tentative signs of increased buyer activity. The median resale price fell for the 16th consecutive month — to $515,000 — returning prices to levels not seen since October 2004.

Sales are declining across the Bay Area, but Sonoma County has been among the hardest-hit places in the region. Home prices actually rose 2.4 percent in October across the Bay Area, according to DataQuick Information Systems, which tracks the median price for for all new and resale houses and condominiums. Price increases in the region’s costliest counties outpaced declines in areas with more affordable housing.

Excess inventory

The housing downturn is worse in Sonoma County and other counties on the Bay Area’s edge largely because sales have been slowest and price declines greatest among homes priced around $500,000. More homeowners in that range relied on risky loans to purchase homes around the market’s peak and may be forced to sell. Soaring foreclosures have led to tightened lending requirements that push out some buyers.

“We’re still trying to work through the inventory and the bad loans. Under $500,000 is where the inventory is amazing,” said Rick Laws, Santa Rosa manager for Coldwell Banker, Sonoma County’s largest residential brokerage.

At the end of October there were 2,597 houses for sale in the county, October’s highest level since 1992, when the county was last in a housing decline. At the current sales pace, that supply would last 11 months; four to five months is considered a market balanced between buyers and sellers.

A combination of reluctant buyers and sizable supply continues putting pressure on sellers to cut prices across all price ranges to varying degrees.

October’s median resale price of $515,000 is down 8.8 percent from a year ago and off 16.8 percent from the peak in August 2005.

The correction from record high prices that began two years ago accelerated in recent months because of the fallout from lax lending and a surge in subprime loans. Such financing helped buyers purchase houses, particularly in high-priced areas including Sonoma County.

The slump extended into higher-priced neighborhoods as lenders also tightened the money supply for so-called jumbo loans buyers use to finance more than $417,000. Known as a conforming loan, that is the highest amount national mortgage companies Freddie Mac and Fannie Mae will purchase from lenders.

“Much of today’s slow sales pace in the Bay Area is due to turmoil in the jumbo mortgage market,” said Marshall Prentice, DataQuick’s president.

Purchases financed with jumbo mortgages have dropped in half while those with conforming loans have increased 12 percent, said John Karevoll, DataQuick’s analyst.

“It’s in the process of easing up. But it’s nowhere near back to where it was,” he said. “It’s still having an impact.”

For instance, financing the entire purchase price for a house is difficult unless buyers qualify for first-time or low-income programs. Lenders frequently expect buyers to make down payments of 10 percent.

Buyers who can’t make a 20 percent down payment likely must buy mortgage insurance. Fewer lenders are offering loans to finance part of the down payment to avoid mortgage insurance.

Monthly payments fall

Still, interest rates are favorable. Combined with lower prices, the typical monthly mortgage Sonoma County buyers committed themselves to paying in October was $2,249, down from $2,379 a month ago and $2,457 a year ago, according to DataQuick.

“It should help demand,” Karevoll said. “We’re thinking with these sales numbers that we’re pretty close to the floor here.”

Real estate agents and mortgage brokers said there have been signs of increased buyer activity in recent weeks.

The number of home sales pending at the end of October rose slightly from September, a time when sales normally dip with the approach of winter.

“The majority of people are sitting on the sidelines. But we’re starting to see some people come into the market,” Laws said.

Fewer sellers are seeking unrealistic prices and more buyers are making offers, said Mark Hedley, owner of Green Valley Mortgage.

“All of a sudden, I’ve got three purchases this week. I’ve been going with one purchase a month for three or four months,” he said. “People seem to think that the bottom is near, but we’re not there yet.”

Indeed, economists who track Sonoma County have said falling home sales and prices likely won’t level until well into next year.

Further, shaky economic indicators, including job and income growth, could be a drag on housing in the months ahead, Karevoll said.

“Is the economy good or isn’t it? That plays into how demand gets generated,” he said.

The October median price also was down 7.2 percent from September. Month-to-month changes are not considered as accurate an indicator of a market’s direction as year-over-year comparisons.

You can reach Staff Writer Michael Coit at 521-5470 or mike.coit@pressdemocrat.com.