CA modesto bee

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Modesto Bee


A bleak picture was painted of the region’s housing market at a recent conference for real estate appraisers.

The Appraisal Institute’s Northern California Chapter brought in experts to speak at the all-day event in Modesto last month, and their words weren’t cheery.

Speakers focused on housing trends and the slumping real estate market throughout the Northern San Joaquin Valley.

Statistics released recently by building and real estate associations also show a troubled market:

• Home prices falling: The worst of the housing price slump may not be over.

“This year, we’re going to see prices drop in every market across the country for the first time since the Great Depression,” said Steven Smith, a property appraiser and consultant from San Bernardino.

Smith predicted that home values throughout the country will fall 25 percent to 50 percent below what they were at their peak, which was in 2005 or 2006, depending on the region.

New home prices already have declined dramatically in the Northern San Joaquin Valley.

This March, the median-priced new home in Merced County was $310,990, which was nearly 22 percent below March 2006, according to Hanley Wood Market Intelligence.

In Stanislaus County, new homes sold in March with a median of $430,990, a 4.2 percent drop. In San Joaquin County, they sold with a median of $462,950, a 12.3 percent drop.

“Builders are continuing to lower prices and offer incentives to buyers,” said Joanna Terry, a senior manager for Hanley Wood Market Intelligence, a real estate research firm. In addition, she said, many builders are including upgrades without charging extra.

Used homes also are selling for far less this year compared with last.

In Modesto during the past six months, the median home sales price was about $322,000, compared with about $340,000 during the same period a year ago, according to the Central Valley Association of Realtors.

Modesto’s $18,000 median price drop is modest compared with nearby communities.

Resale home prices are down about $55,000 in Turlock, about $46,000 in Oakdale and Riverbank, $49,000 in Salida, and $113,000 in Ripon.

“We have not hit the bottom yet in prices. There’s just too much inventory,” said Glenn Race, sales man- ager for Prudential California Realty. “It will take time for the next recovery, perhaps four to five years.”

• Slow home sales: It’s taking much longer for homeowners to sell their property compared with last year, according to the Central Valley Association of Realtors.

In Modesto, for instance, only 732 houses had sold this year through mid-May. During the same period in 2006, nearly twice as many -- 1,349 homes -- had sold.

Sales are off even more in many smaller cities, such as Riverbank, where 59 homes sold, compared with 181; and Oakdale, where 76 sold, compared with 152.

New home sales also are very sluggish.

Only 1,382 new homes were sold during the first three months of 2007 in Stanislaus, San Joaquin and Merced counties, according to Hanley Wood.

That’s 26.3 percent fewer than during the same months in 2006. Sales were about twice as high during those months in 2003, 2004 and 2005.

There are 79 active subdivisions with 10 homes or more in Stanislaus County, 70 in Merced County and 96 in San Joaquin County. Combined, those developments had more than 700 completed homes waiting for buyers during the first three months of this year.

“Subdivisions that should have sold out a year ago are still here,” Terry said. She said each subdivision on average is selling only about 1½ homes per month in Stanislaus, one home in Merced and three homes in San Joaquin.

That’s far slower than last year’s sales pace, let alone the rapid sales rate experienced from 2003 to 2005.

Among the best-selling developments in the region this year are: Woodbridge by Del Webb in Man- teca, Legends North by JKB Homes in Turlock and Bing Cherry by Kimball Hill Homes in Ceres.

• Why home buyers commute: “As you drive from the Bay Area to Modesto, home prices drop $6,000 per mile,” said Mike Zagaris, president of PMZ Real Estate. “A 2,000-square-foot home in Santa Clara costs $700,000 more than in Modesto.”

His calculations are based on the price of homes for sale in Santa Clara, Pleasanton, Tracy and Mo- desto.

“That $6,000 per mile difference is an incentive for people to move here,” Zagaris said.

• Investors gone: Many of the homes purchased during the region’s real estate boom years were bought by investors and second-home buyers, but such buyers have disappeared, Race said.

“Due to slower or nonexistent appreciation, less equity to convert to down payments and higher returns on other investments, we have lost approximately 35 percent of the purchasers who made up the 2005 record-setting bull market,” Race said. “These potential purchasers are sitting on the sidelines today waiting for signs of what’s next.”

• Exotic mortgages: Many buyers in recent years agreed to untradi- tional loan terms to finance their purchases.

“These buyers took shortcuts to homeownership with ‘stated income loan.’ Today they’re called ‘liar loans,’ ” Race said. “They took shortcuts with zero down payments, negative amortization loans, interest-only mortgages, sellers covering closing costs and short-term suicide loans where the fixed-loan period is only two or three years with an equally long prepayment penalty.”

Now, interest rates are adjusting upward and property values have dropped, so homeowners can’t refinance their mortgages.

“The ‘toxic’ mortgages taken out in 2004, 2005 and 2006 are resetting, causing problems for many who gambled on continued appreciation,” Race said. “They were playing ‘house poker,’ and many are ‘all in’ right now.”

• Subprime loans in trouble: About 18 percent of mortgages in the Northern San Joaquin Valley are subprime loans, compared with an average of 16 percent in all of California and the United States.

Of Stanislaus County’s subprime borrowers, more than 14 percent were 60 days or more late on their mortgage payments as of March, according to statistics gathered by First American LoanPerformance.

That’s nearly six times higher than the late payment rate from two years ago.

About 5 percent of Stanislaus County’s subprime borrowers were in the process of being foreclosed on in March. LoanPerformance shows that foreclosure rates are more than nine times higher than two years ago.

Subprime loans typically are made to borrowers who have low credit scores or histories of payment problems, so they are considered at higher risk to default. These loans typically have higher interest rates and fees compared with prime loans.

Prime borrowers are in much better shape. In Stanislaus County, only about 1 percent of prime borrowers are behind on their payments and just 0.35 percent are in the process of foreclosure.

• Foreclosure homes for sale: Homeowners at risk of losing their homes to foreclosure often try to sell before it’s too late.

During the first four months of 2007, there were 1,733 homes for sale in the Northern San Joaquin Valley that were in process of foreclosure or already had been taken back by the lender, Race said.

By comparison, only 1,149 such homes were for sale in all of 2006. Race said the huge increase in “distress sale” properties is dramatic- ally impacting the market because they must be sold.

“They are not selling quickly enough to not be a drag on this market and are affecting the market values of all homes in the marketplace,” Race said.

• Loans tougher to get: Rising foreclosure rates on subprime loans are expected to make mortgages harder to get, Race said.

“The National Association of Realtors has predicted the tightening of standards and proposed new restrictions on new loans may cause a decline of approximately 100,000 to 250,000 sales nationwide in 2007-2008. That’s about 3 percent per year,” Race said.

• Building permits decline: The Northern San Joaquin Valley building boom is over. The number of building permits issued has plummeted, according to the Construction Industry Research Board.

Merced County building permits fell 64.6 percent during the first four months of 2007, compared with the first four months of 2006.

Building permits dropped 44.3 percent in Stanislaus County, 34.1 percent in San Joaquin County and 28.2 percent statewide for the same period.

• Realtors quitting: Membership is shrinking in the Central Valley Association of Realtors.

Race said there were more than 3,300 members of the association in February 2006. But that declined to about 2,500 in February 2007 -- a drop of 800, or 24 percent.

“Simply put,” Race said, “there are not enough sales to sustain the large population of agents walking around with licenses.”

• Time to buy: “The best time to buy anything is when nobody else wants it,” Zagaris said. “The window of opportunity is now open for people who want to invest in residential real estate for the long term.”

He said that’s because prices have dropped, interest rates remain relatively low, the economy is stable and there’s a broad selection of houses for sale.

“The fact is: The smart money is buying real estate now,” Zagaris said. But he warned that prices may not recover quickly. “Next year we’re still going to be in this real estate correction.”