Publication Date: Friday, October 14, 2005
Buyers can cheer as housing market stabilizes
Buyers can cheer as housing market stabilizes
(October 14, 2005) Rising inventory puts pressure on sellers
by Jeb Bing
The days of multiple offers for that "dream house" that buyers want to snatch are over, at least for now and probably well into 2006.
That's the view of Realtors and brokers the Pleasanton Weekly interviewed for this annual Fall Real Estate report.
"We're at a turning point right now, with the market turning toward a more stable condition, maybe even into a buyers' market," said Realtor Michael Tessaro of Alain Pinel Realtors. "I truly don't know what has caused it, but it's clear that with so many things going on - rising interest rates, Katrina, the war in Iraq, high gas prices and much more - people aren't as confident about the future and they're holding back on buying."
The result is that where there were just 44 houses on the Pleasanton home resales market in January, there are 196 as of Oct. 1, and that number is expected to increase. That is giving most buyers a chance to consider several homes in their price range before making an offer, and is also requiring sellers to get back to the basics in making sure their house is in near-perfect condition before putting it on the market.
"Back in January, it was very typical for sellers to see an average of five or more offers for their home if it was priced under $1 million," said Realtor Shannon Witters of Keller Williams Realty. "For town houses, it was not uncommon to see even 10 offers. Buyers had to pull out all stops if that was the house they wanted."
That changed starting in mid-August, with the number of homes on the market increasing rapidly and buyers, for the first time in years, gaining considerable leverage in making offers. For the first time, some sellers are reducing prices to move their homes more quickly, another significant change from just a few months ago when offers often exceeded their asking price.
"I'm not saying we're still not seeing some multiple offers, but the house has to be squeaky clean and under $900,000 to get those," Witters said. "The market is getting back to a normal pace."
Real estate broker Rick Hempy of Valley Brokers agreed.
"The market is adjusting and it's long overdue," he said. "You can't have 20 percent appreciation for four years in a row and expect it to last. Even if the Pleasanton market adjusts downward by 10 or 15 percent, which we're not seeing yet, that wouldn't equal even a year's appreciation."
Hempy recalled the last market downturn in the late 1980s and early '90s when home prices plunged by 15 to 20 percent in many parts of the Bay Area. He had listed one new home in the Golden Eagle neighborhood for $900,000, which finally sold for $700,000. After the market turned around, that buyer sold it for $1 million just two years later.
But Hempy and other Realtors do not expect any pricing slumps as severe as those 15 years ago because of continued high demand to live here. With its award-winning schools, sports teams, parks and business parks, Pleasanton still attracts many from neighboring cities, the Central Valley and the Peninsula who find the lifestyle better here.
"But it's going to be a tougher market going forward for Realtors and brokers," Hempy said. "At last count, there were 830 of us in the Valley, all looking at the Pleasanton market. "I think we're going to see some thinning of the ranks."
One real estate broker who is less concerned about the changing Pleasanton housing market is Mike Hyles, owner of Re/Max 1st Choice. Ranked No. 5 among 111,000 agents in the Re/Max system last year, Hyles started in the business in 1991, one of the worst years in memory for most Pleasanton agents. He survived and grew his agency to where he enjoyed a 20 percent increase last year.
"Sure, we had a slowdown last month, but that happens every September," he said. "In August, typically what happens is the kids go back to school, people are taking the last of their vacations and then, in September, everybody who doesn't have kids at home takes theirs, so home sales slow down."
"This year, the hurricanes and gas prices going over $3 a gallon made things a little worse and the economy overall seems to have slowed down," he added. "But I expect that to pick up again and right now is a great time for the buyer to buy. There is plenty of inventory on the market, plenty of homes to pick from, sellers are being a little more lenient as far as giving closing cost credits and coming down on their price a little. It's a good time to buy."
He said that he went into October last year with seven listings, including one house that had been on the market since June, and sold all seven in just three days.
Hyles said he has also noticed two changing trends. Last weekend he had an open house for a one story home, and found that among the 15 couples who came through the home, four currently live in larger homes in Ruby Hill, but now, with their children gone, want to downsize yet stay in Pleasanton.
"There's a real trend there as those who have 5,000-7,000-square-foot homes don't need that size anymore and want something that's still nice but easier to maintain," Hyles explained.
"Another trend I'm finding is that $1 million is no longer the price barrier it was when I first got into this business," Hyles added. "We don't call it a million-dollar home anymore, just homes that are in the '1's,' much like we used to refer to the 'upper 4's' and so on. Today, it's $2 million that is more of a price barrier."
With mortgage interest rates at about 6 percent and demand still there, Hyles said the higher inventory of available homes in the resales market could be "sucked back down" again quickly as more buyers come to Pleasanton.
He also said that while the media keeps talking about a housing bubble and softening sales and prices, the fact is that some sellers have priced their homes too high and are now adjusting them downward, but only to more realistic levels in line with what other homes have sold for recently in their neighborhoods.
Hyles said that two months ago he sold a house on Greenfield Way that was listed for $925,000 for $965,000. Today, that seller might have accepted the asking price.
He also said that with creative financing still available, many can afford higher priced homes than they thought possible. A Pleasanton beauty shop owner just bought a $1,175,000 home in San Ramon using negative amortization that gives them a monthly payment of just $2,600.
"Although they go in the hole about $26,000 a year on their mortgage, the house is expected to appreciate even conservatively at 7 percent annually, increasing the value of the house and putting them well ahead," Hyles explained.
But it's the creative financing that worries Hempy the most.
"I have seen 100 percent, even 105 percent financing for many buyers," Hempy said. "Some of these people have debts of $100,000 on their MasterCard. If these people have to refinance because they're in a 1 percent short-term loan on the $1 million house they bought, and at the higher mortgage rates we're seeing, and with their property taxes at $1,500 a month, and they're only making $100,000 a year, they just won't be able to handle that. It's scary."
Michael Tessaro said he has been in the business for 21 years and seen the ups and the downs. Even the worst downturn n 1989-90 was only 17 percent in Pleasanton, compared to 40 and 50 percent on the Peninsula. And a 17 percent drop wouldn't equal one year's appreciation for most homeowners.
"Pleasanton is always in demand," he added, "a good link to jobs on the Peninsula, with good schools and its downtown a big draw. Next year is an election year and those are usually very good for real estate because politicians like to keep interest rates low so that they can be re-elected. I think the opinion that prices will soften here is true, but the softening will be based on how high interest rates go."
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