Forecasters see end to Sonoma County housing woes
(((GOOD NEWS???)))
Sonoma County’s slumping real estate market should finally hit bottom in late 2008, ending a three-year slide that has already wiped out almost $120,000 in value from the typical home.
A pair of new forecasts project home prices could tumble 6 to 9 percent in 2008 before the county’s housing sector stabilizes in the fall or winter. Even then, the local real estate market will remain sluggish for another year or two, analysts forecast.
Home values, which peaked in August 2005 when the median hit $619,000, have already dropped 19 percent. In November, a typical single-family home sold for $500,000 in Sonoma County.
Pegging the bottom remains a difficult task for economists, who have underestimated the severity of the county’s housing slump. Most economists now agree that home prices and sales will decline even more before the housing market levels off.
In response, local builders are bracing for their worst year in at least two decades. The number of new apartments and houses put up in the county next year is projected to dip under 1,000 units for the first time since the building industry began tracking housing starts in 1988.
“It was hard to imagine this housing cycle would be as deep as it is. And it’s got a ways to go still. This is big,” said Steve Cochrane, regional economist for Moody’s Economy.com.
The outlook for housing has deteriorated as rising foreclosures push more homes onto the market at the same time tighter lending standards squeeze out potential buyers.
Falling prices are drawing people into the market, but the demand is dwarfed by the number of homes for sale with supplies in the county at a 12-year high. Homes are taking four months to sell, on average, and often only after sellers cut their asking price.
“Buyers are really wary right now. If you’ve got a glut of housing, it takes awhile for buyers to work through those,” said Luke Tilley, senior economist for Global Insight, a Lexington, Mass., forecasting firm. “It gets worse before it gets better.”
Housing’s change of fortune is creating winners and losers. Sellers are weary of watching the value of their homes drop month after month, while buyers who were priced out of the market are now seeing opportunities that were out of their reach just two years ago.
In Windsor, Ashley Long paid $470,000 earlier this month for a four-bedroom house that was worth $630,000 near the market’s peak. The sellers, which originally listed the home at $525,000, cut the price twice to attract a buyer.
“Six months ago this kind of house wasn’t out there for her,” said Long’s agent, Tim Souza, with Century 21 Alliance in Windsor.
A first-time home buyer, Long looked at more than 50 houses over three months, trying to find the nicest house for the lowest price. She didn’t hesitate, however, to make an offer on the Windsor house after Souza spotted the latest price reduction, yet Long still went under the seller’s amount.
“I got a pretty good deal. I know this is a low market and the house is worth more than that,” Long said.
To lower her monthly mortgage payment, Long made a 10 percent down payment to lock in a low interest rate on a 30-year loan.
“It’s the only time I’m going to be able to afford to buy in Sonoma County,” she said. “I can’t imagine it going down a lot lower, and eventually it has to come back up. I don’t want to gamble.”
How low prices will go and when housing hits bottom have been moving targets for economists as all indicators — sales, prices and housing starts — continue to slip.
“It will be more severe than we previously forecast,” Tilley said.
The latest Sonoma County housing outlooks from both Moody’s Economy.com and Global Insight forecast the price for a typical house should decline another 6 to 9 percent next year.
“It’s going to be another tough year ahead,” Cochrane said.
A more optimistic outlook from the California Association of Realtors in October will likely be revised downward, said Leslie Appleton-Young, the association’s chief economist.
The association’s initial forecast called for a 4 percent drop in prices statewide next year. The declines could be potentially steeper in Sonoma County due to fallout from the subprime loan crisis and because housing here remains costly for first-time buyers.
“There’s more risk on the downside,” she said. “I just don’t know how much lower we can go. It’s close to as bad as it’s ever been.”
Next year could mark an all-time low for residential construction in Sonoma County, considered a good gauge of where the market is headed. This year, housing starts are on pace to settle near the low of 1,464, reached in 1996. Next year, builders are expected to construct between 785 to 960 new homes in Sonoma County, according to the latest forecasts by Moody’s and Global Insight.
“That’s builders really reacting to what’s going on with demand,” Tilley said. “There’s so many homes for sale. People are still on the fence about building.”
The housing market peaked in the summer of 2005, ending an eight-year boom that nearly tripled the price of the typical home in Sonoma County. Home values began dropping in July 2006 as buyers balked at paying ever higher prices. Foreclosures shot up this year, adding to a burgeoning supply of homes for sale. Conditions deteriorated further in August when lenders tightened the money supply, initially for less qualified buyers and then for others at higher price levels.
Entry-level buyers have felt the squeeze most. As a result, the price of homes under $500,000 has tumbled at more than twice the rate of higher-priced homes.
“The demand may be there but the lack of financing is holding that back,” Cochrane said. “Mortgage credit is the most difficult to get for first-time buyers now. Also, that hinders the ability at the low and middle tiers to move up. They just can’t sell their own house and that works to slow the market down.”
While homes are selling and buyers who can stay in the market are finding deals, sales must pick up substantially before prices level.
“The buyers are waiting for it to hit bottom and I don’t think many people think we’re there yet,” Appleton-Young said.
For many would-be buyers, Sonoma County home prices remain too high compared with what they can afford. Home prices rose far faster than incomes during the housing boom.
Sonoma County home prices were “extremely overvalued” from 2004 through much of 2006 and since have returned to being “moderately overvalued,” according to a study by Global Insight and National City Corp., a Cleveland bank.
Some families have enjoyed an increase in their buying power, as lower prices combined with favorable interest rates reduce monthly mortgage costs. The typical mortgage payment for Sonoma County buyers was $2,214 in November, down 11 percent from $2,488 a year ago, according to DataQuick Information Systems.
But prices still have room to fall and then need to remain flat for a year or two to significantly boost sales, Cochrane said.
Prices should hit a floor by third quarter of next year, according to Tilley and Appleton-Young, with Cochrane pegging it to the fourth quarter.
Each of those forecasts assumes the national economy doesn’t dip into a recession, yet the chances for one have risen.
The direction of the economy and housing are now linked in fundamental ways. Housing’s slowdown has generated job losses in real estate, lending and construction, and cut into consumer spending. Sluggish job and income growth in other sectors is sapping demand for housing.
“We’re kind of walking the line of recession. We’re going to squeak by,” Tilley said. “The pessimistic view would be a recession in the first two quarters.”
You can reach Staff Writer Michael Coit at 521-5470 or mike.coit@pressdemocrat.com.
Sonoma County’s slumping real estate market should finally hit bottom in late 2008, ending a three-year slide that has already wiped out almost $120,000 in value from the typical home.
A pair of new forecasts project home prices could tumble 6 to 9 percent in 2008 before the county’s housing sector stabilizes in the fall or winter. Even then, the local real estate market will remain sluggish for another year or two, analysts forecast.
Home values, which peaked in August 2005 when the median hit $619,000, have already dropped 19 percent. In November, a typical single-family home sold for $500,000 in Sonoma County.
Pegging the bottom remains a difficult task for economists, who have underestimated the severity of the county’s housing slump. Most economists now agree that home prices and sales will decline even more before the housing market levels off.
In response, local builders are bracing for their worst year in at least two decades. The number of new apartments and houses put up in the county next year is projected to dip under 1,000 units for the first time since the building industry began tracking housing starts in 1988.
“It was hard to imagine this housing cycle would be as deep as it is. And it’s got a ways to go still. This is big,” said Steve Cochrane, regional economist for Moody’s Economy.com.
The outlook for housing has deteriorated as rising foreclosures push more homes onto the market at the same time tighter lending standards squeeze out potential buyers.
Falling prices are drawing people into the market, but the demand is dwarfed by the number of homes for sale with supplies in the county at a 12-year high. Homes are taking four months to sell, on average, and often only after sellers cut their asking price.
“Buyers are really wary right now. If you’ve got a glut of housing, it takes awhile for buyers to work through those,” said Luke Tilley, senior economist for Global Insight, a Lexington, Mass., forecasting firm. “It gets worse before it gets better.”
Housing’s change of fortune is creating winners and losers. Sellers are weary of watching the value of their homes drop month after month, while buyers who were priced out of the market are now seeing opportunities that were out of their reach just two years ago.
In Windsor, Ashley Long paid $470,000 earlier this month for a four-bedroom house that was worth $630,000 near the market’s peak. The sellers, which originally listed the home at $525,000, cut the price twice to attract a buyer.
“Six months ago this kind of house wasn’t out there for her,” said Long’s agent, Tim Souza, with Century 21 Alliance in Windsor.
A first-time home buyer, Long looked at more than 50 houses over three months, trying to find the nicest house for the lowest price. She didn’t hesitate, however, to make an offer on the Windsor house after Souza spotted the latest price reduction, yet Long still went under the seller’s amount.
“I got a pretty good deal. I know this is a low market and the house is worth more than that,” Long said.
To lower her monthly mortgage payment, Long made a 10 percent down payment to lock in a low interest rate on a 30-year loan.
“It’s the only time I’m going to be able to afford to buy in Sonoma County,” she said. “I can’t imagine it going down a lot lower, and eventually it has to come back up. I don’t want to gamble.”
How low prices will go and when housing hits bottom have been moving targets for economists as all indicators — sales, prices and housing starts — continue to slip.
“It will be more severe than we previously forecast,” Tilley said.
The latest Sonoma County housing outlooks from both Moody’s Economy.com and Global Insight forecast the price for a typical house should decline another 6 to 9 percent next year.
“It’s going to be another tough year ahead,” Cochrane said.
A more optimistic outlook from the California Association of Realtors in October will likely be revised downward, said Leslie Appleton-Young, the association’s chief economist.
The association’s initial forecast called for a 4 percent drop in prices statewide next year. The declines could be potentially steeper in Sonoma County due to fallout from the subprime loan crisis and because housing here remains costly for first-time buyers.
“There’s more risk on the downside,” she said. “I just don’t know how much lower we can go. It’s close to as bad as it’s ever been.”
Next year could mark an all-time low for residential construction in Sonoma County, considered a good gauge of where the market is headed. This year, housing starts are on pace to settle near the low of 1,464, reached in 1996. Next year, builders are expected to construct between 785 to 960 new homes in Sonoma County, according to the latest forecasts by Moody’s and Global Insight.
“That’s builders really reacting to what’s going on with demand,” Tilley said. “There’s so many homes for sale. People are still on the fence about building.”
The housing market peaked in the summer of 2005, ending an eight-year boom that nearly tripled the price of the typical home in Sonoma County. Home values began dropping in July 2006 as buyers balked at paying ever higher prices. Foreclosures shot up this year, adding to a burgeoning supply of homes for sale. Conditions deteriorated further in August when lenders tightened the money supply, initially for less qualified buyers and then for others at higher price levels.
Entry-level buyers have felt the squeeze most. As a result, the price of homes under $500,000 has tumbled at more than twice the rate of higher-priced homes.
“The demand may be there but the lack of financing is holding that back,” Cochrane said. “Mortgage credit is the most difficult to get for first-time buyers now. Also, that hinders the ability at the low and middle tiers to move up. They just can’t sell their own house and that works to slow the market down.”
While homes are selling and buyers who can stay in the market are finding deals, sales must pick up substantially before prices level.
“The buyers are waiting for it to hit bottom and I don’t think many people think we’re there yet,” Appleton-Young said.
For many would-be buyers, Sonoma County home prices remain too high compared with what they can afford. Home prices rose far faster than incomes during the housing boom.
Sonoma County home prices were “extremely overvalued” from 2004 through much of 2006 and since have returned to being “moderately overvalued,” according to a study by Global Insight and National City Corp., a Cleveland bank.
Some families have enjoyed an increase in their buying power, as lower prices combined with favorable interest rates reduce monthly mortgage costs. The typical mortgage payment for Sonoma County buyers was $2,214 in November, down 11 percent from $2,488 a year ago, according to DataQuick Information Systems.
But prices still have room to fall and then need to remain flat for a year or two to significantly boost sales, Cochrane said.
Prices should hit a floor by third quarter of next year, according to Tilley and Appleton-Young, with Cochrane pegging it to the fourth quarter.
Each of those forecasts assumes the national economy doesn’t dip into a recession, yet the chances for one have risen.
The direction of the economy and housing are now linked in fundamental ways. Housing’s slowdown has generated job losses in real estate, lending and construction, and cut into consumer spending. Sluggish job and income growth in other sectors is sapping demand for housing.
“We’re kind of walking the line of recession. We’re going to squeak by,” Tilley said. “The pessimistic view would be a recession in the first two quarters.”
You can reach Staff Writer Michael Coit at 521-5470 or mike.coit@pressdemocrat.com.
posted by Jeromey Clifford, Sotheby's Intl. Realty | 5:28 PM
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