Buyers' market

Finding a home under a half-million dollars was easier than expected for Steve and Becky Bovee, who landed a good deal on a Santa Rosa house that had languished on the market.

The Bovees got the seller to take less than the $424,900 price tag for the three-bedroom, single-story house in Santa Rosa's Hidden Valley neighborhood, and then even kick in closing costs. The original price was $499,000 when the home hit the market four months earlier.

"It's better than we expected," Steve Bovee said. "This was a good time to look. It was more of a buyers' market."

From falling prices and favorable loan rates to a glut of choices, buyers are well positioned to take advantage of Sonoma County's slowest real estate market in more than a decade.

Not everyone can seize the opportunities. Lenders have tightened requirements with loan defaults at record highs. For many borrowers, that means having $50,000 in cash to make a down payment on the typical home.

And many would-be buyers remain wary about the market's direction with analysts forecasting prices will continue to decline well into next year.

Still, buyers who remain in the market have their pick of deals. The days of bidding battles and soaring prices, commonplace just two years ago, are now a distant memory.

The supply of homes for sale in the county is at a 15-year high, and houses are sitting on the market four months, on average.

Home prices have dropped 10 percent from their 2005 peak, returning the price of the typical Sonoma County home to $515,000, a level not seen since 2004. The price of homes under $500,000 has tumbled even faster, 15 percent or more, because the greatest number of homes for sale are in that range.

"The buyers, they are in control now. They are very well aware of it," said Timothy Hedges, broker-manager for Prudential California Realty in Sebastopol. "They want at least the idea that they're getting a good value. Even if a property is priced very competitively, they still want to deal. They want to know they were able to do some negotiating."

Prices predicted to fall

Analysts predict home prices will continue to drop well into next year. The housing market will not begin to level off until the third quarter of 2008, at the earliest, according to the latest outlook for the county prepared by Moody's Economy.com.

While this is bad for sellers, it is welcome news for people who want to purchase a home. Combined with favorable interest rates, falling prices should ultimately draw reluctant buyers back into the market, said John Karevoll, analyst for DataQuick Information Systems, a real estate research firm.

"It should help demand," he said.

Today, a typical Sonoma County buyer's mortgage payment has dropped to $2,249, down 8.5 percent from $2,457 a year ago, Karevoll said.

Mike and Monica Meyer couldn't pay more than $2,500 a month, including property taxes and homeowners insurance, limiting what they could buy when the couple began looking for a home in June.

That month, they made an offer on a home put up for sale by an owner trying to avoid foreclosure. The lender was willing to accept less than the amount that was owed on the house, known as a short sale, but waited until September to approve the deal. By then, the Meyers' lender would no longer finance the entire purchase price, and the deal fell through.

After scrambling to get a new loan, the couple jumped at a Rohnert Park house for $372,000 in November. The home could have sold for up to $450,000 two years ago, at the height of the county's housing boom.

"They couldn't have bought this house in June. There wasn't anything for that price in Rohnert Park," said their agent, Beth Robertson, with Century 21 Classic Properties in Rohnert Park. "They sure can now, and they're thrilled."

Credit crunch continues

The Meyers' scramble to find a new loan is not uncommon as lenders tighten credit standards. While interest rates for 30-year loans are near a two-year low, lenders have scrapped once-popular subprime loans, put limits on 100 percent financing and raised requirements on credit scores and financial documentation.

"When we make a loan, we feel comfortable that these people can afford the payments for the long term. They really do qualify," said Alison Fetherolf, Sonoma County branch manager for mortgage banker Sterns Lending.

As many as 1 in 5 buyers who likely would have qualified for a loan earlier this year have been knocked out, she said.

Tighter loan standards are a drag on home sales but are not killing the market, she said.

"Rates are good. We've got lots of inventory," she said. "Our loan volume has leveled out, and now we're picking up a bit."

Buyers taking their time

But buyers aren't in a rush.

"Some look at dozens of homes," said Randy Tallariti, a Frank Howard Allen agent. "There's so many great deals, and they think the market is going to go down, down, down."

More buyers are considering purchasing through short sales, which make up a growing number of listings. About 20 percent of houses on the market are short sales, in default or in foreclosure.

But short sales take longer to complete, often four to six months, because lenders typically are slow to approve these substantially discounted deals. Buying homes out of foreclosure is largely the domain of investors experienced with distressed properties.

Getting the right deal

Watching prices decline in neighborhoods they liked, Steve and Becky Bovee started looking for a house this fall rather than waiting until spring after he graduates from Sonoma State University. She's a nurse and he's a former Navy sonar technician aiming for a business degree.

The seller rejected their offer on one house. The lender wanted more than the couple offered on a short sale.

The Bovees found a third Santa Rosa house where the sellers had lowered the price three times -- from $499,000 to $424,900 -- to get it sold in a saturated market. The couple came in lower with their offer and had a deal. The final purchase price was not disclosed because the sale is still in escrow.

"That's how it is with the market. Very few people are paying asking price," Steve Bovee said. "That was unheard of two years ago."

Back then, the Bovees were shut out of the market as prices rocketed to record highs. Today, they expect the value of their home to decline, but plan on staying in the home long enough for housing to eventually bounce back.

"I actually foresee us to lose a little value. I think the market is still on its way down," he said. "But the opportunity presented to us was a good one. We plan on hanging out."

You can reach Staff Writer Michael Coit at 521-5470 or mike.coit@pressdemocrat.com.