'Feeding frenzy' creates strong sales for starter homes

Repeatedly shut out in attempts to buy a home for $300,000 or less, Joseph McCormick bid up the price on the next house.

Paying $284,000 -- $9,000 over the asking price -- was still a good deal for the Rohnert Park home, which sold for nearly twice that amount three years earlier.

The strategy worked, leaving the first-time buyer relieved to finally land a house after a sometimes frustrating seven months in the most competitive end of Sonoma County's housing market.

"It was difficult. I wasn't losing hope, but I was starting to second-guess myself," said McCormick. "It's a good feeling once you're in. I figured I'm very lucky."

Crowds of home buyers are snapping up much of what goes up for sale at the lower range of Sonoma County's housing market. In the process, there are signs that prices are finally beginning to stabilize in the market for homes under $300,000.

Sales are cutting into a glut of homes dumped on the market by banks that seized them in foreclosure proceedings or cash-strapped borrowers that unloaded them at discount prices to avoid foreclosure.

Reducing the supply of distressed homes is a critical first stage in stabilizing the housing market, now in the fourth year of a deep downturn.

"The bad news started there, and now it's got to end there," said Nick Dunlop, a Sebastopol appraiser. "It's just a feeding frenzy in that price range right now. It seems like it's solidifying the low end, and maybe that will work its way up."

Distressed properties have dominated county home sales for much of the past year as waves of foreclosed homes and short sales hit the market.

Sales surged as prices plummeted below the $300,000 mark. Four out of 10 homes sold in November and December were priced below $300,000 -- up from just 6 percent of the homes sold a year ago, according to Bay Area Real Estate Information Services, the region's multiple listing service.

Homes are selling faster than they are coming on the market. There was a 1.9-month supply of homes priced under $300,000 at the end of 2008, down from a 15.9-month supply a year ago.

"They're coming out in droves because they know there's no waiting any longer for prices to bottom out. There's definitely more buyers than inventory. Anything under $300,000 -- it's gone," said Logan Adams, associate broker with Remax Central in Santa Rosa.

Adams represents banks selling foreclosed homes. Last month, he had eight such homes -- all priced under $300,000 -- sell after one day on the market.

"Banks price them aggressively to get them off the books. They want them to sell fast," Adams said.

Bank-owned homes are selling in about seven weeks, about one-third the time of the typical short-sale property, which takes about six months to move, according to the multiple listing service.

The pace of sales has contributed to more bidding battles that push the prices of some homes higher. That has helped put a floor under prices overall at the low end.

"Now it will usually sell at the asking price or better," said Chris Smith, a Creative Property Services agent in Santa Rosa who lists foreclosed homes for banks.

Lenders occasionally attempt to generate higher offers by setting prices lower than comparable homes that have sold or are on the market.

A Santa Rosa home recently generated 26 offers because at $299,000 it was priced $70,000 to $80,000 under the likely market value for a comparable 6-year-old, three-bedroom house, said Toni D'Angelo, a Coldwell Banker agent in Santa Rosa.

"You get all these buyers tickled and enthused," she said.

D'Angelo's client offered $326,000 and didn't even get to make a second offer. The purchase price wasn't disclosed because the property remains in escrow, but D'Angelo said it likely didn't go above its market value.

Most lenders, therefore, go with prices based on recommendations from agents and appraisers, agents said.

"They have huge numbers and all they want to do is move them," Smith said.

Buyers are increasingly savvy about pricing since they have had the upper hand during a lengthy housing slump.

"They're pretty educated in this market. They look at a lot of properties before they make a decision," D'Angelo said.

Still, while they remain wary of overpaying, competition at lower prices has intensified the pressure on buyers to offer at least the asking price, if not more, agents said.

"Buyers are ready to write an offer the minute a property comes on the market. We're there and still it's multiple offers," said Theresa Teuma, owner of Legend Real Estate, in Santa Rosa.

Buyers who lose out could become more anxious in their quest for that first home or investment property.

Agents said several strategies can help buyers stay in the game at the hot end of the county's housing market:

Start your house hunt on the Internet. Eliminate any properties that have a pending sale, and be ready to tour homes the same day they come on the market.

Get pre-approval from a lender. That enables you to make an offer immediately.

Make offers ahead of the weekend. Many buyers look at homes on Saturdays and Sundays and make offers on Mondays.

Offer at least the asking price and consider going over by a modest amount.

"We have to work very fast in this market because if you don't, you lose," Teuma said.

More buyers are looking for homes because falling prices put a greater number of properties in reach of county residents who couldn't afford to make purchases as prices soared to record highs during the first half of this decade.

Investors also are buying up homes because rents will cover mortgage payments on lower-priced properties.

During his search for a home priced $300,000 or less, McCormick was beaten out by investors and others making large down payments. He increasingly felt a sense of desperation.

"We even made offers without looking at a home," he said.

McCormick, a derrick boat captain for the U.S. Army Corps of Engineers, navigated the county's housing market with determination and was rewarded. He paid $284,000 for a home that sold for $525,000 in 2005.

"It's the time to buy," he said. "These homes were a bit out of reach a couple of years ago. Now I don't even need roommates to help pay the mortgage."

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