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Bay Area

While the Bay Area housing market overall is slumping and projected to get worse, a local real estate broker sees mostly positive news in Alameda and even possibly some growth this year.

Home prices on the Island remain high and may even see an increase in the spring, said Jerry Nussbaum, owner of Kane and Associates Realty.

The foreclosure and mortgage crises and the double-digit percent decline in prices seen in other areas, such as east Contra Costa County and parts of Oakland, have not greatly affected Alameda.

"While there's some softening of prices (in Alameda), particularly among condominiums and townhouses, that has not been the case as much with single-family detached homes," Nussbaum said. "I wouldn't say (prices are) at their height," he added. "They're not at their height, but the amount of decline is much less than people think it is."

Nussbaum said the city has been fortunate it has not been overbuilt and that it remains an incredibly attractive place to live.

"Right now," he said, "we have the beginnings of a fairly strong spring market."

However, Nussbaum acknowledged a dramatic decrease in sales volume in the city. Some 500 properties were sold last year, reflecting a downward trend from a high of 760 properties sold in 2003.

"We have not seen volume like this since the early '90s, the beginning of the recession of the early '90s," he said.

Other Alameda real estate agents last week said they agreed with Nussbaum's assessment.
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Maureen Shandobil, an agent with Harbor Bay Realty, said she just sold a "lagoon home" on San Jose Avenue near Otis Elementary School for $1 million. The property had 11 offers, she said.

However, home sales around the Bay Area fell in January for the 36th month in a row, and four Bay Area counties saw median prices drop below $500,000 -- something not seen since 2005, DataQuick Information Systems reported recently.

A total of 3,586 new and resale houses and condos were sold in the Bay Area in January. That was down 29.2 percent from 5,065 in December, and down 41.9 percent from 6,168 in January 2007. The figures were the lowest for any month in DataQuick's 20-year history. The monthly average is 6,319 sales.

In Alameda, Contra Costa, Solano and Sonoma counties, median home sales prices dropped below the $500,000 mark. The last time that figure was below $500,000 in Alameda and Contra Costa counties was January and February 2005, respectively, said analyst Andrew LePage.

"There was very little selling in those counties and significant chunks of it were foreclosure activity," LePage said. "In Contra Costa, 33.1 percent of homes sold in January had been foreclosed on in 2007. In Solano County it was 43.2 and Alameda it was 24.9 percent."

Foreclosed sales counted for 19 percent for the entire Bay Area.

San Mateo County also experienced its biggest drop in 20 years in sales and its median home price fell 8.2 percent. The only time home prices fell more was during the dot-com bust of February 2002, LePage said.

The drop in home sales and prices is based on three factors, he said.

"Many people are not out there buying now because they already bought and may be losing that home," LePage said. Other reasons include buyers and sellers trying to time the market and the tightening of credit standards and recorded drop-off of loans more than $417,000 in September.

The median price paid for a Bay Area home was $550,000 last month, down 6.4 percent from $587,500 in December, and down 8.5 percent from $601,000 in January last year. Last month's median was 17.3 percent lower than the peak $665,000 median, reached in July, and was the lowest since February 2005, when the median was $549,000.

"I think it looks like the typical January it was," said Larry Klapow, president of Coldwell Banker Residential Brokerage, San Francisco Bay Region. "You finally saw prices come down because the high-end homes sales came down."

Klapow said he believed the new $168 billion economic stimulus package signed by President Bush on Wednesday would help the market, especially those move-up buyers. "It's a bit of a bottleneck in that segment of the market," he said. "It will help selling the $500,000 homes and get those people moved up to whatever they are trying to buy."

The new economic stimulus package, which would go into effect March 14, could raise current government-sponsored mortgage limits from $417,000 to $729,750 until Dec. 31.

Last month, the percentage of Bay Area homes purchased with jumbo mortgages, or loans more than $417,000, fell to 34.5 percent, down from 39.6 percent in December and about 63 percent before the credit crunch six months ago.

Stephen Levy, director of the Center for Continuing Study of the California Economy in Palo Alto, said the economic stimulus package was unlikely to change much in the state's housing industry.

"I think prices are still too high, by at least 10 to 15 percent," Levy said. "Too high means that they are unaffordable to people based on their current income. We were in a stage where housing problems got way out of line because lenders were not requiring income or assets."

Lower interest rates for qualifying households between $400,000 and $700,000 would help but wouldn't be enough to offset the change in lending practices, he said.

"Some people can buy a bit larger house, but I doubt it will have much effect until the price correction and houses become affordable," Levy said. "It doesn't make a difference if the house is still $200,000 more than you can afford."

Jon Sonstelie, a visiting fellow at the San Francisco-based Public Policy Institute of California and an economist, said mortgage rates would have more effect on the housing market than the Bush administration package.

"When interest rates fall, prices tend to rise," he said.

Hans Johnson, associate director of research for the Public Policy Institute of California, said many factors were influencing housing statistics, including market psychology, decreased demand and the credit crunch.

"While there was clearly a market psychology when the market was going up," he said, "now market psychology is on the downside.''

The typical monthly mortgage payment that Bay Area buyers committed themselves to paying was $2,503 last month, down from $2,744 the previous month, and down from $2,804 a year ago. Adjusted for inflation, current payments are 4.9 percent below typical payments in spring 1989, the peak of the prior real estate cycle. They are 24.8 percent below the current cycle's peak in June last year.

Because of late data availability, the December statistics for Alameda County were extrapolated from the first three weeks of the month.

Barbara E. Hernandez covers real estate. Reach her at 925-952-5063 or bhernandez@bayareanewsgroup.com. Visit her East Bay real estate blog at http://www.ibabuzz.com/propertylines.


In the heady years of the real estate boom, buyers who pulled out of a deal usually got their deposits back.

But these days, in a market still searching for a bottom, buyers who walk away are increasingly out of luck.

"In the past, some home builders would not try to keep deposits knowing full well they could sell the property for more money within a short period of time," said Ron Rossi, a veteran real estate attorney in San Jose. "Obviously when the markets get tighter, these things get more dicey."

Just ask Seyda Harding Kaynak. Three months after she put down a $30,000 deposit on a $952,975 home to be built by Toll Brothers in Dublin, she and her husband changed their minds.

An agent for Alain Pinel Realtors, Kaynak initially was excited about the new neighborhood under construction and encouraged other clients to check it out. But after signing her own sales contract, a client she represented - who was buying a condominium in the same development - had trouble closing the deal on the condo with Toll Brothers.

So in July, Kaynak asked Toll Brothers to refund her own deposit. The company, which declined to discuss Kaynak's case specifically, refused, pointing to the signed contract, which both Kaynak and her husband signed. Eight months later, Kaynak is still fighting to get her deposit back.

California real estate law allows a seller to require a deposit of up to 3 percent of a home's value to cover damages if a buyer
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backs out. Under the law, the seller can keep that. Kaynak's deposit was up to 3 percent.

In a rising market, industry experts say, builders have been known to refund deposits because they can sell the house for the same price or more. But it's another story in a falling market such as the Bay Area, where home sales dropped 42 percent in January compared with a year ago, according to DataQuick Information Systems.

"Builders are counting on these contracts. They are investing a lot of money, buying land, paying city fees and school district fees," said Paul Desmet, president of the Ryness Co., a consultant to the home-building industry.

Moreover, when a buyer puts down a deposit, that house is considered sold by the builder, and no longer available. "That builder could have sold that house to someone else and closed on it," he said.

Kaynak, a Pleasanton resident, realty agent for 20 years and onetime lawyer, is well-acquainted with the home-building industry. She said her house wasn't even built when she tried to cancel the contract last summer. Furthermore, she said she has represented several new-home buyers in the past who backed out of contracts - even at the last minute - and got back their deposits. One client's company, for example, was acquired and he feared for his job.

"In each case, each builder said, 'We're not in the business of keeping people's deposits, we're in the business of building homes. We would rather keep their good will,' " Kaynak recalled. "I remember those words."

Glen Martin, group president for Toll Brothers in Northern California, agreed that in the past, builders more readily returned deposits. In a flat or falling market however, he said, his damages are real.

Martin said builders do consider each buyer and their reasons for breaking the contract. If a buyer suffers a serious illness or worse, a refund may be in order. But simple cold feet are not covered. Toll Brothers saw an increase in cancellations in late 2005 when the market first headed downward, but that has leveled off, he said. Cancellations declined in all new-home projects in the Bay Area from a high of 26 percent of sales in 2006 to 21 percent in 2007, according to the Ryness Report.

Toll Brothers was the only builder that would speak on the record about the company's policy on deposits. Builders contacted by the Mercury News, including KB Home, Shapell Homes, Warmington Homes, Taylor Morrison and SummerHill Homes, either did not return calls or declined to discuss the issue.

But attorneys who handle such cases say disputes over deposits are on the rise, and not just over new homes, but also for resale homes.

"I'm seeing all these $300,000, $400,000 even $500,000 deposits that are fought over," attorney Rossi said.

But in this market, buyers can protect themselves - and their deposits - if they decide to walk.

Attorneys recommend that buyers insist on inserting contingencies that cover a buyer's ability to obtain a loan, for example, and a thorough housing inspection report.

Kaynak, whose contract contained no contingencies, said that, like many buyers, she was swept away in the moment.

"It was on April 1, and if you didn't write it that day you would miss out on the $4,500 plasma TV," she recalled. "Yes, I'm an agent and a lawyer, but I'm also a human being."

Contact Katherine Conrad at kconrad@mercurynews.com or (408) 920-5073.



Contra Costa

Move over McMansion, make room for the East Bay's newer, cheaper house.

KB Home will add two new scaled-down models to its new Antioch development, Almond Ridge, that will range from the low- to mid-$300,000s.

"Our business model focuses primarily on the affordability and combines the whole idea of value to the customer," said Marc Burnstein, vice president of sales and marketing for KB Home, South Bay Division, which includes the East Bay. "The average homes size was 2,700 square feet and now it's about 2,100 square feet."

Because of the downturning housing market, a glut of foreclosures and a six-month credit crunch, home buying has slowed and builders are responding with smaller, inexpensive models aimed well below the $417,000 conforming loan limit to maximize the number of buyers.

Burnstein said the biggest expense for builders is land and by adding more density per acre, it creates more affordability. "You combine that with a build-to-order business model and people aren't going in and paying for things they don't want or need," he said.

Matt Koart, Pulte Homes' area president for Northern California in Pleasanton, said that product size would be based on local markets and developments but Pulte has no national strategy.

"It may mean a change in specifications or in some cases make them smaller," he said. "If a city is charging $100,000 a house in fees, not much changes if the house gets smaller. ... With $70,000 to $80,000 to develop the land,
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you're almost at $200,000 per house before you build anything vertical."

Bryce Ellsworth, broker and owner of Windermere Ellsworth & Associates in Brentwood, said that builders in tougher markets will find it hard to compete with newer bank-owned properties.

"People look for value and a house being under a certain price," he said. "But they want a bigger house for less money."

His client, Roger Stone, 46, who signed a contract last week to buy a new 3,600-square-foot home in the Meritage Homes' Tanglewood at Live Oak Ranch development in Oakley, disagreed. Despite his larger home, Stone believes that smaller, cost-effective floor plans are a great idea for East Contra Costa.

"When the price gets lower, the more people are able to afford them," he said. "It's human nature to want more and more ... but they may not be able to afford it."

Centex Homes and D.R. Horton are reportedly offering smaller models to cut costs nationally, but regional offices could not be reached for comment. A spokeswoman for Lennar said that there were no plans to downsize floor plans in the Bay Area.

Average square feet for detached homes fell slightly in the last three months of 2007 in Alameda and Contra Costa counties, from 2,883 to 2,675 and 2,963 to 2,822, respectively, but rose in Solano County from 2,475 to 2,658. Price per square foot for detached homes fell in Contra Costa from $293.52 to $288.88. rising slightly in Alameda and Solano counties.

Jonathan Dienhart, director of published research for Hanley-Wood Market Intelligence in Costa Mesa, said that lowering costs of new homes makes sense for builders, especially those building infill or suburban housing.

"While the price per square foot is quite high, the overall price is quite affordable," he said. "I would not be surprised if the price per square foot will remain the same or even go up, but it's being offset by smaller square footage."

Another reason for the drop in prices is affordability because financing for homes over the conforming loan limit of $417,000 dried up in August, he said.

Dienhart said that builders could continue to offer the same floor plans and slash prices or respond to the down-turning market.

"This is their response," he said. "It may still wind up being feasibly profitable for them ... but the down market was a strong motivator for them to do that quickly."

For Will Birdsey, 34, a San Francisco commercial real estate project manager looking for a home in Lamorinda, smaller homes in outlying areas won't make much of a difference.

"We're not that demographic," Birdsey said. "We're location-driven and I don't think you can replace that with a spec house. The older houses tend to be better located and on bigger lots.

Alan Nevin, chief economist of the California Building Industry Association, said that in the Bay Area, smaller homes will be seen first in the outlying areas of east Alameda and Contra Costa counties, as well as Solano County.

"It's hard to buy a $250,000 plot of land and put a 1,200-square-foot house on it," he said. "But if they were $200,000 and now you're getting it for $100,000, you can put out smaller homes."

Nevin said that publicly traded builders, who answer to shareholders, have more pressure to sell off existing land than private builders. Many will be selling land to smaller developers at a loss, possibly fueling the trend of cheaper land for cheaper houses.

"Across the board, we will be downshifting to about 2003 to 2004 prices," he said.

Barbara E. Hernandez covers real estate. Reach her at 925-952-5063 or bhernandez@bayareanewsgroup.com.


Ventura County