Buyers are beginning to bid against each other on modest but good-quality homes at the lower end of the Peninsula real estate market.
The housing market was battered in the wake of the 2008 subprime loan crisis, when a rash of foreclosures and a worldwide credit shortage drove down overinflated real estate prices and kept would-be homebuyers at bay.
But with prices down and interest rates low, cash-wielding investors are increasingly active in the market, scooping up deals on lower-end properties, real estate agents say.
Young and first-time homebuyers are taking advantage of a growing trickle of available bank credit, access to Federal Housing Administration loans and a federal tax incentive program that could soon expire.
Those factors are combining to create some of the first low-level bidding wars seen in two years.
“In 2009, people couldn’t get loans,” Peninsula broker Lenore Wilkas said. “It didn’t matter what the price was. Banks just said, ‘Sorry, we’re not lending.’ They finally opened up their purses and let the moths fly out at the end of 2009 and beginning of 2010.”
Despite a firming market, Wilkas said that some property owners continue to repay loans that are higher than their properties are worth.
The bidding wars, which are surprising some new entrants into the home-buying market who didn’t expect competition from other buyers, are helping to nudge upward the value of properties valued at less than $500,000.
The wars are being won by cash-in-hand buyers, because credit remains relatively elusive, which causes delays and sows doubt in the minds of property sellers dealing with hopeful money-borrowers.
“Cash is king. If you’ve got the cash, you’re likely to prevail,” Wilkas said.
The $8,000 federal tax credit was designed to stimulate activity in the real estate market, and Peninsula real estate agents and analysts say they are seeing results at the lower end of the market.
Such homes are most prevalent in cities such as Daly City and San Mateo.
Altos Research data shows a spike in low-priced home sales occurred before the forecasted demise of the program late last year. A similar spike appears to be emerging in early 2010 as a growing pool of homebuyers race to capitalize on the credits before their potential expiration at the end of April.
“The $8,000 tax credit was initially for first-time homebuyers, but now it’s for everybody,” Altos Research CEO Mike Simonsen said. “On a $1 million house, $8,000 is not that interesting. On a $500,000 house, it starts to get much more interesting.”
Additionally, the federal government in 2009 began buying up mortgages, which kept interest rates artificially low for loans under $600,000, according to Simonsen.
Federal government officials have been “throwing money” at the real estate market to shore it up, “but they’ve been throwing it very specifically at the lower end,” Simonsen said.
The benefits are flowing mostly to the owners of properties that were built with quality materials in decent locations close to good schools and other amenities, according to Simonsen.
“You’ve got some properties that have been on the market for two years. They’re sitting around not selling because they’re dumps or because they’re overpriced,” he said.
Ultimately, the real estate market continues to be held back overall by a lack of confidence in the economy and job security, according to broker Bobbi Decker.
“The ingredient missing is confidence,” Decker said. “Until that’s re-established, I think we’re going to have a stop-start market.”
A family’s journey to homeownership
Roger and Melody Hoover took advantage of a weak real estate market, federal tax credits and a loosening credit market to move from a condo into a house after their first baby was born.
The couple, who married in August 2008, tried to sell their condo and upgrade to a house in 2009 before baby Melia was born, but problems in the credit market interfered with their plans.
A buyer for their 1,100-square-foot Foster City condo was able to put 60 percent of the purchase price down in cash, but lenders were reluctant to loan the other 40 percent.
After proving he had a degree from Harvard University and a millionaire father, the homebuyer secured a loan after months of delays.
The Hoovers then had problems buying a San Mateo house, although they outbid three other bidders, because of the state of the credit market.
“The way the lending was working at that time, the lender that we tried to use did their appraisal and didn’t agree with the price,” Roger Hoover said.
By the time an alternative lender was found, the seller had sold the property to a cash-paying buyer whose bid was slightly lower than that of the Hoovers.
In January, however, the now-three-person family, which had lived temporarily with Melody’s mother, purchased and moved into a three-bedroom house with a view in San Bruno.
The couple was able to borrow the necessary money, and they expect to receive an $8,000 federal tax credit with their tax return this year.
“We got really lucky,” Roger Hoover said.
— John Upton
Cost of living
Median housing prices in the Peninsula:
|San Mateo County||$650,000||$765,000||$553,750||$800,000|
Source: Altos Research
Biotech execs, entrepreneurs keep high-end market afloat
The for-sale signs in front of scores of high-end Peninsula properties are fading as pricey homes continue to languish on the market, in some cases for hundreds of days or more.
Very few buyers are currently in the market for high-end homes, real estate agents say. Such homes are most prevalent in cities such as Menlo Park and Burlingame.
Nonetheless, recession-era wealth has continued to flow to executives working in some industries, such as biotechnology, which is helping to create a limited pool of well-financed bargain hunters.
“There’s still a lot of money out there because we still have the Silicon Valley entrepreneurs; we still have Wall Street, and those people are getting paid well,” broker Bobbi Decker said. “But they’re very particular — it has to be just the right house.”
— John Upton
State of foreclosures
San Mateo’s foreclosure rate was better in January than most California counties, largely because its homes held their values better in recent years than those in other municipalities. The chart lists one in how many homes is in foreclosure proceedings.
|Location||Ratio of homes to one in foreclosure