Bargain homes drive up sales in county

Sonoma County's summer home sales surge continued in July as buyers snapped up discounted properties shed by lenders and financially strapped homeowners.

Sales rose for the fourth consecutive month, but the vast majority of deals were clustered in the bargain bin at the bottom of the market.

Sales of homes priced at less than $500,000 more than doubled in July, compared to a year ago, but sales of homes priced at more than $500,000 continue to decline, falling 39 percent over the past year.

Overall, buyers purchased 413 existing single-family homes in July, up 20.8 percent from a year ago.

"People are out looking for bargains. I think you're going to see continued softening of prices into next year," said Leslie Appleton-Young, chief economist for the California Association of Realtors.

The price of the typical home sold in Sonoma County fell to less than $400,000 for the first time in five years. The median price -- the point at which half the homes sold for more and half for less -- tumbled to $399,000 in July, down 30.6 percent from a year ago.

Prices now have fallen 25 consecutive months, dropping 35.5 percent from the record $619,000 set three years ago.

Sonoma County housing prices won't stabilize until sales cut into the glut of distressed properties hitting the market, bringing the overall supply of homes for sale into better balance with buyer demand, Appleton-Young said.

Every week, lenders seize almost 80 homes from borrowers who have stopped paying their mortgages. Those homes go back on the market, sometimes within weeks, other times within months, almost always at a sharp discount.

At the end of July, 2,386 homes were listed for sale in Sonoma County. There remained a nearly six-month supply at the end of July, based on the current sales pace. A four-month supply is widely considered a balanced market -- one where buyers and sellers are on equal footing.

However, the number of homes for sale in the county has dipped for three consecutive months as buyers slowly chip away at the backlog of unsold homes.

"The good news is a lot of it is moving quickly," said Timothy Hedges, broker-manager for Prudential California Realty in Sebastopol. "The sooner we clear through the bank-owned inventory, the sooner we will start to see the appreciation (in prices) start to swing up. But that could be another year. It's just a matter of time to flush that out."

Falling prices are drawing in buyers once priced out of the market, as well as an increasing number of investors.

"There are a lot of people that have good credit and a job, but were on the sidelines because they couldn't afford a home. And there's always investors. We've got both of them coming in," said Rick Laws, Santa Rosa manager for Coldwell Banker, which prepares The Press Democrat's home sales report.

The sales rebound has largely been driven by purchases of less expensive homes.

In July, 68 percent of all purchases were for less than $500,000, compared with 36 percent a year ago.

Most of the homes for sale under a half-million dollars are being dumped by owners who no longer can afford them or by banks that seized them in foreclosure proceedings. Typically, these homes were last sold near the peak of the housing market three years ago.

"We're seeing multiple offers on almost every bank-owned home that's in livable condition," Hedges said. "Folks are seeing the opportunities out there. The selection buyers have to choose from is tremendous."

Laws said the surge in sales does not appear to be a seasonal blip. The volume of sales in July approached its historic average for the first time since the downturn took hold.

"We haven't seen anything like this in a couple of years. It certainly appears that we have a sustainable trend here," Laws said.

Still, sales remain sluggish at higher price ranges, in part because there are fewer move-up buyers. Falling prices have discouraged homeowners from selling if they can't afford to cut prices and compete with distressed properties on the market.

Lower-priced homes will likely drive the county's housing market into next year because of the continuing wave of foreclosures, Appleton-Young said.

"We've essentially got to work through the foreclosures that we know are coming over the next six to 12 months. So it's just a longer period of time where you're just kind of bouncing along the bottom," she said.

Any recovery also could be slowed by tightened lending requirements, as well as the economy's downturn.

With more homeowners defaulting on loans and losing houses to foreclosure, lenders have been raising credit score standards and requiring larger down payments to purchase homes at the best interest rates.

"People can start affording the houses, but the problem is a lot of lenders are tightening up their policies. The recovery is going to take longer," said Scott Dovala, Santa Rosa branch manager for Ascent Home Loans, a mortgage bank.

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