Home sales at record low

<p>Sonoma County's housing downturn worsened in December as the price of a typical home fell below $500,000 for the first time in nearly four years and sales dropped to their lowest level since 1990.</p><p>As the shadow of a recession creeps over the county and lenders tighten credit, buyers remain wary of overpaying for homes, according to The Press Democrat's latest market report.</p><p>Home sales usually slow over winter, but this December they nearly vanished. Only 188 homes sold in Sonoma County during December, about half the average for the month and the lowest since The Press Democrat began tracking the market 17 years ago.</p><p>The typical home sold for $466,500 in December, down 18.2 percent from a year ago and the first time the median fell under the half-million mark since May 2004. Prices have now fallen for 18 consecutive months, in year-over-year comparisons.</p><p>"I think 2007 was at least as challenging as anything I've experienced, maybe even more so. We're in the wintertime of a very challenging market," said Brian Connell, broker-manager for Frank Howard Allen Realtors in Santa Rosa.</p><p>The hardest-hit area of the county is southwest Santa Rosa, where there is a large number of homes priced for first-time buyers. The typical home sold for $455,000 last year, down 14.2 percent.</p><p>Three cities that appeal to affluent buyers -- Healdsburg, Sebastopol and Sonoma -- are suffering the least from the housing slump. Prices rose slightly in Healdsburg and Sebastopol last year, and jumped 14.6 percent in Sonoma, where the typical home sold for $775,000 last year.</p><p>But home sales declined across the county last year, even in its wealthy enclaves. Overall, 3,423 single-family homes were sold last year, down 23 percent from 2006. It was the fewest number of homes to change hands in 12 years.</p><p>Sonoma County's median home price -- or price at the midpoint of all sales that occurred in 2007 -- fell to $552,500 in 2007, down 5.6 percent from 2006.</p><p>Economic forecasts call for the county's slumping real estate market to hit bottom late this year. Even then, sales are expected to remain sluggish and prices likely won't level off until possibly early 2009.</p><p>Holding their breath</p><p>The region is in a mild recession that will persist through 2008, according to the SSU Center for Regional Economic Analysis. Sagging job growth constrains demand for homes at a time when soaring foreclosures are forcing more houses on the market, driving down prices.</p><p>"Job growth isn't that strong. Job creation has a direct impact on housing demand and that feeds into prices," said David Berson, chief economist for PMI Mortgage Insurance, of Walnut Creek. "There's just an overall lack of housing demand. The inventories are just way too high."</p><p>As a result, there is a growing risk Sonoma County home prices will be lower two years from now, according to a new PMI study. Home prices face a 58 percent chance of falling in Sonoma County in two years, up from a 38 percent chance just three months ago.</p><p>The murky economic outlook was an important factor in December's home sales drop, analysts said.</p><p>"I think there's a lot of people holding their breath. A lot of people entering the market want to be sure they're near or at the bottom," said Rick Laws, Santa Rosa manager for Coldwell Banker, which prepares The Press Democrat's monthly home sales report.</p><p>Homes are taking four months to sell, on average, and often only after sellers reduce prices, several times in some cases.</p><p>A buyers market</p><p>In Petaluma, Kevin and Rebecca Boesler have cut the price of their home 5 percent since listing it for sale in August. The 2,500-square-foot, four-bedroom house was originally placed on the market at $789,000. Hoping to attract a buyer, the Boeslers have reduced the price to $749,000.</p><p>"It's priced with the competition, but the market is just crawling around right now. I think the buyers are sitting on the fence," said Scott Rowlands, the Frank Howard Allen Realtors agent from Santa Rosa with the listing.</p><p>The family hopes to sell so they can purchase or build a home on country property, Rowlands said.</p><p>"So they're willing to take a loss, but they're going to buy something a lot cheaper than two years ago, if they can make it happen," he said.</p><p>Undeniably, the housing market has bogged down. There were 2,138 houses for sale in the county at the end of December, up from 1,539 a year ago and well above the December average of 1,361 homes. More striking, there was an 11-month supply of homes on the market, based on the current pace of sales -- four to five months is considered a market balanced between buyers and sellers.</p><p>More buyers continue to see their purchasing power increase. Interest rates, falling back toward historic lows, combine with lower prices to reduce monthly mortgage payments for buyers.</p><p>Declining prices are expected to draw more buyers into the market. Still, Sonoma County home prices remain too high for many, as price increases outstripped income gains of the typical county family during the housing boom.</p><p>Housing peaked in August 2005 when the typical home sold for $619,000, ending an eight-year run when prices nearly tripled.</p><p>What began as a correction two years ago accelerated last fall as foreclosures took off and lenders tightened the money supply.</p><p>"Getting loans through is more difficult. Every day there are guideline changes. They're all related to declining values," said John Klein, executive vice president of Simpac Financial, a Santa Rosa real estate lending and sales company. "Lenders are demanding better credit, more income. It's subtle, but it's continuing to happen."</p><p>More money down</p><p>Finding a loan to finance the entire purchase price for a house is difficult unless buyers qualify for first-time or low-income programs, hurting entry-level buyers. Most lenders now expect buyers to make down payments of 10 percent. And buyers who can't make a 20 percent down payment likely must buy mortgage insurance.</p><p>Jumbo loans used to finance purchases above the so-called conforming loan limit of $417,000 have become more expensive and harder to obtain, extending the slump into higher-priced neighborhoods. The conforming loan limit is the highest amount national mortgage companies Freddie Mac and Fannie Mae will purchase from lenders.</p><p>"We need to have the financing available for people to soak up the inventory and right now we've got the credit crunch. That really is affecting the middle and upper markets," Laws said.</p><p>Weakness at the top</p><p>In December, for instance, there were 107 sales under $500,000, comparable to 109 a year earlier. But in the $500,000 to $750,000 range there were only 52 sales compared with 184 a year ago. And in the $750,000 to $1 million range, only 15 homes were sold compared with 58 a year earlier, Laws said.</p><p>The drop-off in sales at higher price ranges likely was a reason for the significant price decline in December, Laws said.</p><p>The longer the housing downturn lasts, the more pent-up demand there will be to buy. But the rebound will take some time to develop, analysts said.</p><p>For buyers willing to brave the market today, there are plenty of homes to choose from, Connell said.</p><p>"The ability to negotiate now is probably as good as I've ever seen it. You're not competing with everybody. You're not competing with a lot of investors, though I expect them to start coming back," he said. "But it's also possible that we may have another year of grinding through it and the market doesn't level out until 2009."</p><p>You can reach Staff Writer Michael Coit at 521-5470 or mike.coit@pressdemocrat.com.</p>