Housing market spurs bidding wars
| Saturday, Jul 04 2009 12:00 PM
Last Updated Saturday, Jul 04 2009 12:00 PM
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Bidding wars for houses? Multiple offers above list price? Is this Bakersfield in 2009?
It sure is.
Home buyers seduced by low interest rates and state and federal tax incentives are storming the real estate market and finding inventory sharply reduced.
But all this demand may be artificial. Some real estate professionals predict a further decline in home prices when still more foreclosures flood the market later this year or early next year.
Have we forgotten the lessons of overpaying during the last real estate frenzy?
“There are some crazy things going on in the market right now, that’s all I can tell you,” said
Josephine Cullison, branch manager of Miramar Real Estate Group.
In the last two weeks, she’s written 17 offers for clients, many of them above list price. None were successful.
Renter Laura Avila, 29, is in escrow on a short sale, which is a transaction in which a lender agrees to accept less than it is owed.
Avila, who has a good sense of home values because she works as an appraiser for the county, lost out on a house she wanted to buy three weeks ago despite bidding $30,000 above the seller’s asking price.
But she’s determined to buy now.
“I really think we’ve hit bottom on pricing,” Avila said. “I don’t see how we can go much lower.”
The median sales price of existing single-family homes in the greater Bakersfield area increased $10,000, or 8 percent, from May to June to $135,000, according to The Preliminary Crabtree Report, a monthly real estate report produced by Gary Crabtree of Affiliated Appraisers.
Don’t get too excited.
“We’re in a bumpy bottom,” said agent Jeanne Radsick of Century 21 Hometown Realty. “The market’s up and down, but still a little soft.”
What worries Crabtree about the recent price upswing is buyers weary of losing bank-owned properties to higher bidders are starting to play a little game to lock in their offers.
They bid unrealistically high to assure they are the winner, but the offer is subject to an appraisal, which invariably comes in much lower, sometimes too low because shell-shocked banks prefer appraisers who are extremely conservative.
“These sales set a new low for neighborhood comps, thus effectively repressing the recovery,” Crabtree said.
Drivers of demand
A number of factors make buying right now attractive:
• Although interest rates are climbing, they’re still relatively favorable, averaging a little more than 5 percent.
• A federal tax credit of up to $8,000 for first-time homebuyers. In late May, the government made a policy change that allows shoppers to use that credit now rather than wait for tax season. The money can be used for a downpayment or for closing costs.
• A state tax credit for new home purchases has halted, but could be extended. Under a program that began in March, buyers of new homes could receive a credit of 5 percent of the value of the home, not to exceed $10,000. The program was supposed to run through March 1, 2010, but was capped at $100 million. Last week, the Franchise Tax Board said that cap had been reached, but several lawmakers are pushing to raise it.
From January to May, the city of Bakersfield issued 340 single-family home building permits, compared with 464 during the same period last year.
Shrinking supply
At the same time, myriad pressures on the local housing supply are frustrating would-be buyers.
• There were 1,390 active listings in June, down 7.6 percent from 1,504 in May and down 57 percent from 3,232 in June of last year, Crabtree’s report said.
• Banks are largely holding on to foreclosed property. As of Thursday, only 350 lender-owned properties were on the market in the greater Bakersfield area.
• Until it expired in March, a moratorium on foreclosure sales and evictions from houses owned by mortgage giants Fannie Mae and Freddie Mac kept many distressed homes off the market.
And there’s SB 1137, a California law passed last year that prevents lenders from filing a notice of default on certain loans until 30 days after contacting the borrower to asses their financial situation and explore alternatives to foreclosure. The law applies to loans made from 2003 to 2007.
New wave of foreclosures?
The market’s diminished inventory is probably temporary, though.
Bakersfield area foreclosures are up by more than a quarter since this time last year, and real estate experts predict another wave of foreclosures as a result of Kern’s 14.2 percent unemployment rate and the resetting of payment option adjustable rate mortgages.
Option ARMs, as they’re known in the industry, give borrowers a low initial mortgage payment that loses ground on the principal balance, but over time the minimum payment increases, sometimes to two or three times its original amount.
Such loans were popular during the real estate boom, and California carries a disproportionate share of the number granted nationwide.
“The thinking at the time those loans were written was that prices in California would never fall,” said Rick Sharga, senior vice president of RealtyTrac, a real estate information firm based in Irvine.
“But now prices are down 40 to 50 percent from their peak, and banks won’t refinance someone who’s upside down so a lot of those people are going to be walking away from their mortgage.”
It’s also just a matter of time before lenders release some of the foreclosed houses they’ve been hoarding.
“We’ve all seen them,” said real estate agent Cullison. “They’re everywhere. The lawns are brown, nobody’s living there, but they’re not on the market.”
That’s maddening for people such as Keith Peters, a 47-year-old painting contractor and investor who owns two rental properties.
Peters wanted to buy more houses, but between bidding wars and bank owners who wouldn’t respond to his inquiries, he lost out on several other opportunities.
“It’s almost like gambling,” Peters said. “It’s a total crapshoot.”
