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Falling home prices pique interest

By VANESSA GREGORY, Californian staff writer
e-mail: vgregory@bakersfield.com | Saturday, Mar 15 2008 12:00 PM

Last Updated: Thursday, Mar 13 2008 11:22 AM

On a recent Sunday, about 30 prospective homebuyers climbed on a bus outside southeast Bakersfield’s Lowe’s store.

They had signed up for a bus trip with HomeBuyer Tours, a company that runs weekly home viewing tours designed to pinpoint the city’s best housing bargains — mostly bank-owned homes priced between $200,000 and $300,000.

Many liked what they saw.

“They’re shocked about what they get for their money now,” tour operator Ginny Wadsworth said.

Free falling home prices may be a horror to the homeowner, and possibly the surest sign of a troubled housing market. But real estate agents, potential homebuyers and homebuilders are citing affordability as a bright spot in a rough market — although prices are still well above the pre-boom days.

“There are definitely some deals to be had,” Coldwell Banker Preferred real estate agent Stephanie Franks said.

The buyer has an excess of selection — 2,001 homes are listed for sale at $199,999 or below in Kern County, according to the Bakersfield Association of Realtors. Another 802 are priced between $200,000 and $249,999.

The median home price — where half the homes sell for more and half sell for less — tumbled from $298,601 at its peak in September 2006 to $238,450 in February, according to Bakersfield home appraiser Gary Crabtree. That is a 20 percent decrease.

‘SPARED'

Carrie and David Sandles first tried to buy in 2005, when prices were soaring toward their summit. But the price of the new construction house they considered at around $250,000 kept going up.

“For middle class people, it’s hard,” Carrie Sandles said.

She was frustrated and angry when their first attempt to buy failed, but now feels her family was “spared” from investing during the market’s run-up.

This year, David, a teacher, and Carrie, who home schools three of their four children, are buying a $217,000 home in Sydney Harbor, a subdivision near South Union Avenue and Berkshire Road.

This time they had their pick of lots and styles.

They’re buying with a 30-year fixed-rate Federal Housing Administration loan, which allows them to get in with a $500 down payment to the homebuilder.

But they didn’t take the decision to buy lightly.

“My concern was: Is the market going to turn even worse, more south?” Sandles said. “Am I going to walk into a home that’s already depreciated?”

In the end, the family decided the home was a long-term investment that will eventually yield a return, Sandles said.

She expects they will stay put for five to 10 years.

“We wanted some place for our family to be,” Sandles said.

‘STILL DRAMATICALLY WORSE'

Home prices have started to decrease, easing the burden for families such as the Sandles. But the high affordability rates Kern’s residents once enjoyed are nowhere in sight.

“It is true that the affordability factor has improved, but that’s relative,” said Stephen Pelz, executive director of the Housing Authority of the county of Kern. “It’s improved from a year ago, but it’s still dramatically worse than it was six years ago.”

During the last three months of 2001, housing was affordable for 70 percent of those in Kern County, according to a housing affordability index by the National Association of Home Builders, a trade group, and Wells Fargo bank. The index weighs incomes against housing stock cost to come up with its estimates.

At the end of 2007, Kern’s affordability percentage had fallen to 22 percent.

“It’s hard to see it getting back to 70 percent,” Pelz said.

Bakersfield’s annual median household income, in 2006 inflation-adjusted dollars, is $51,421, according to the U.S. Census Bureau. With that income, a loan applicant could qualify for a $250,000 FHA mortgage, according to Medallion Mortgage branch manager Beth Cheatwood.

But the approximately $2,025 monthly payment would likely be too restrictive for most families earning the annual median.

That monthly bill would suck up about 39 percent of the borrower’s gross income, Cheatwood said.

Conventional lenders typically assume a family can spend around 28 percent of their income on housing.

A loan of $200,000, with a $1,580 monthly payment that includes taxes and insurance, would be a better financial choice, Cheatwood said.

‘A NEEDLE IN A HAYSTACK'

And while many houses are priced at $200,000 and below, buyers on a limited budget may need to exercise some patience.

“Unfortunately a lot of (entry-level houses) are in very poor condition,” real estate agent Susan Harlander said.

Banks that have repossessed homes through the foreclosure process often know nothing about a property’s condition, she said.

Harlander has seen strange floor plans, termite damage, leaks and ceiling fans without electrical connections to make them turn.

She’s been searching for a decent $160,000 first home for a couple with three children for about three months, she said.

“It’s a tough market for those buyers,” Harlander said. “Fortunately, interest rates are low while housing prices are low.”

True bargains get multiple offers, and dealing with a bank, rather than a traditional seller, can take a long time, she said.

“You’re looking for a needle in a haystack,” Harlander said.

TELECOMMUTING TO OWN

At least one recent buyer said Bakersfield’s affordability, relative to most of the state, lured her from Southern California.

“Housing is less expensive out there, and I have been trying to buy for quite some years,” said Isa Santiago, who plans to move from Chino to a $220,000, three bedroom, two bath house she bought on the east side in a few weeks.

Santiago, a 33-year-old financial coordinator for an aviation company, plans to telecommute to make the move work.

WAITING FOR THE CREAMPUFF

If Wadsworth’s bus passengers are any indication, some consumers are intrigued by falling prices, but still cautious. Several said they rode the bus not to shop, but to learn about the real estate market in an atmosphere free of high-pressure sales tactics.

Steve Holian, a medical products engineer, has taken the bus tour twice.

He thinks current prices are “very interesting,” but plans to wait for prices to fall further before he buys.

“My father wants to buy me a house in Bakersfield, but we’re on a limited budget,” Holian said.

He’s “watching out for the creampuff” home deal — ideally, a discounted foreclosure near Stockdale High School, where his son is a student.

Some homes caught his eye on the tour, but nothing fit the bill.

“I’m not in the position to pull the trigger quite yet,” Holian said.