Is Sonoma County's real estate market stabilizing?

Home sales remained strong in May and supplies continued to shrink, signs that Sonoma County’s housing market could be starting to stabilize, according to a new report.

But a new wave of foreclosures is looming on the horizon and one analyst warned that prices are not expected to hit bottom until the end of the year, at the earliest.

The region’s 412 homes sold in May was the highest for the month in four years, according to The Press Democrat real estate report prepared by Rick Laws with Coldwell Banker in Santa Rosa.

Buyers continued to nibble away at the backlog of unsold homes. There was a 3 1/2-month supply of homes on the market at the end of May, based on the pace of sales. Three to four months is widely considered a balanced market putting buyers and sellers on equal footing.

Competition is strongest for lower-priced homes, primarily properties seized by banks through foreclosure or unloaded by sellers before they lose them to lenders. Nearly two-thirds of all sales were properties priced under $400,000.

“Buyers are clamoring for them. As soon as a home comes on the market, we’re on it,” said Beth Robertson, a broker with Century 21 Classic Properties, in Rohnert Park.

Because buying is concentrated in lower price ranges, the county’s median price fell to $350,000 in May. The median — the point where half the homes sell for less and half sell for more — was down 17 percent from a year ago, but the rate of decline slowed to its lowest level since the beginning of 2008.

“People know that properties are priced to buy. They’re afraid of missing out,” said Kris Anderson, a broker with Allstate Mortgage Company, in Santa Rosa.

Buyers also have been motivated by mortgage interest rates that have risen the past several weeks, but remain near historic lows. The monthly loan payment for a $350,000 home purchased with a 10 percent down payment and a 30-year loan is $1,789 today, down from $1,940 a year ago, Anderson said.

“They sense that now is the time to buy, especially since rates have gone up here of late,” she said.

Sales also picked up some at higher prices, with 25 percent of purchases above $500,000 compared with 15 percent a month earlier.

As a result, the median increased 11.1 percent from April, when it stood at $315,000.

Still, the market is dominated by foreclosure homes and short sales, where owners owe more than the price they hope to get.

While buyers are snapping up distressed homes, the supply could swell again if banks put more on the market, said Chris Smith, a CPS agent in Santa Rosa who sells foreclosed homes.

“The fact that the banks held foreclosures off the market from the foreclosure agents dried up the supply,” he said.

Some banks held off selling foreclosed homes this spring after President Obama launched an effort pushing lenders to help owners stay in homes, Smith said. Banks also didn’t want to help drive prices lower by flooding the market, he said.

After receiving a handful of foreclosure listings the past two months, Smith received six in the past week.

“I think we’ve got another wave of foreclosures that is about the same size as the first wave that we had,” Smith said.

Foreclosure and short sale homes flooded the market more than a year ago following a mortgage meltdown largely centered in loans made to homeowners with spotty credit.

Today, fewer homeowners in the county are going into foreclosure. Banks foreclosed on 1 percent of existing mortgages in April, down from 1.41 percent a year ago, according to First American CoreLogic, a real estate research company.

But foreclosures could pick back up as more homeowners fall behind on their mortgages. In April, 3.78 percent of all mortgages in Sonoma County were at least 90 days past due, up from 3.66 percent a year ago, according to First American.

A rise in troubled loans could keep housing mired in a downturn into next year, said Eduardo Martinez, a senior economist for Moody’s Economy.com who tracks Sonoma County and other California regions.

“The pipeline of delinquencies has been increasing. That has made the pie of potential foreclosures bigger,” he said. “It’s still pretty bleak.”

A larger supply of distressed homes would be good news for buyers seeking more affordable homes. But those properties depress property values — the median price is down 43 percent from the peak four years ago — and remain a drag on any recovery in the housing market.

Sonoma County home prices could hit bottom by the end of this year, at the earliest, if an economic recovery takes hold later this year, Martinez said.

“The big question is if unemployment continues to increase. If we start seeing a recovery picking up steam by the beginning of the fourth quarter, the foreclosures will at least slow down and unemployment will slow down and that will help the financial position of a lot of people,” he said. “We’re still a quarter or two away before we give the all clear signal.”