County home sales up 2nd month in row

Continuing a spring surge, Sonoma County home sales rose in May and dented the supply of properties on the market for the first time since the onset of the housing slump three years ago.

A turnaround could be months away, however, because the bulk of sales are in lower price ranges flooded by foreclosed homes, pulling down values in many areas.

"If we didn't have the foreclosure market, we wouldn't have a market. We've got to work through at least another year of this," said Mike Kelly, an agent with Keller Williams Realty in Santa Rosa.

The county's typical house sold in May for $425,000, down 26 percent from a year ago, according to The Press Democrat's latest home sales report.

First-time buyers, as well as investors, are buying the lowest-priced homes, which could clear out the more distressed homes from real estate listings and eventually bring some stability to the housing market, analysts said.

The market has been inundated with distressed properties. Banks are slashing prices to get foreclosed homes off their books as record numbers of homeowners continue going into default. Sellers who can't refinance loans and hope to avoid foreclosure seek prices far less than what they owe on mortgages, known as a short sale.

As a result, prices have been driven down in many neighborhoods, drawing more buyers off the sidelines.

The 375 sales of existing homes in May were up 9.3 percent from the same month a year ago and followed a similar annual sales increase in April. The figures come from The Press Democrat's monthly home sales report prepared by Coldwell Banker.

The hottest price range is under $400,000, where sales increased tenfold over a year ago and accounted for more than 40 percent of all May purchases. By contrast, sales fell by a third for homes priced at more than $500,000.

Overall, sales remain below historical monthly averages. But the pace of deals is quickening and reflects more than a seasonal increase as more families look to move in spring and summer, analysts said.

Sellers accepted offers on 529 homes in May, up 52 percent from a year ago. Those deals should close in June or July.

"All of these buyers have come off the fence. They have been waiting a long time for market conditions to be such as they are now," said Toni D'Angelo, an agent with Coldwell Banker in Santa Rosa.

A frenzy of sales at lower prices has created bidding contests among first-time buyers and investors alike. Those who miss out on their first choices often find ample alternatives.

Strong activity at the market's lower end, however, has done little to increase sales at more than $500,000.

Sellers of distressed properties are not moving up. Steep price cutting discourages those who would like to sell, but don't have to, unless they have built up substantial equity.

"That's the tough part. It's really narrowed the field for people who can sell their home," D'Angelo said.

Rising interest rates and still tight mortgage financing are a drag on sales in higher price ranges.

The average interest rate for a 30-year loan hit an eight-month high in the latest weekly survey by Freddie Mac, the national mortgage lender. Buyers already face tighter lending requirements with foreclosures at record levels.

Rising interest rates also have diminished some of the boost expected after Congress created a new type of jumbo mortgage for Sonoma County and other high-priced areas. Interest rates on jumbo conforming loans -- $417,000 to $662,500 -- remain about a half-point above loans under that level.

"The financing isn't as attractive. Now someone has to really want to buy a house," said Maia Lomax, president of the Redwood Empire Mortgage Lenders Association.

With sales bunched at lower price ranges, the overall median price for a Sonoma County house was $425,000 in May. The median has fallen 23 consecutive months, declining 31 percent from the market's peak price of $619,000 three years ago.

Still, sales have been strong enough to begin cutting into what remains a sizable supply of homes for sale.

The 2,322 homes for sale at the end of May was down 5 percent from a year ago, the first decline in three years. There is a six-month inventory based on the current sales pace. Four months is considered a market more balanced between buyers and sellers.

"Somewhere in the next six to 12 months we're going to begin to run out of this bank-owned and short-sale inventory and then we will see what happens with prices," said Rick Laws, Coldwell Banker manager in Santa Rosa.

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