Home prices continue to tumble
January 24, 2009
By KAREN VELIE
Combinations of short sales and foreclosures due to unaffordable mortgage payments, as well as hard money lending schemes, are propelling an incredibly rapid deceleration of San Luis Obispo County home prices.
Throughout the area, homes are selling for as little as 50 percent of what they sold for a few years ago. An end to the slide appears far off.
For example, a home on Sheridan Road in Arroyo Grande sold for $849,000 in May 2005. Today it is on the market for $449,000. Last summer, a home buyer purchased a home on Adina Way in Nipomo for $227,250. The same home sold for $448,000 in September of 2005.
In the North County, a home on Shetland Way sold for $339,000 in January 2006. Today, it is listed for $159,000.
High-end tract home prices appear to be tumbling alongside their more affordable counterparts. In Paso Robles’ Montebello Estates, homes sporting granite countertops, three-car garages, and four bedrooms and four baths have fallen in price from the low $600,000 to a variety of prices in the mid $300,000 range, with many being either short sales or foreclosures.
A short sale occurs when the price of a home is below the loan amount owed on the property. Foreclosures occur when lenders take possession of a property to satisfy a debt.
Individual banks work with a group of brokers specializing in bank-owned properties. First, these specialists analyze the properties through a broker price opinion in which three “sold” and three “active” comparable property listings are used to help the broker arrive at a suggested price.
Some banks, like Bank of America, often price the property below the suggested amount in an attempt to quickly move their foreclosure inventory, according to a local broker. Properties with soiled floors and dirty countertops are sold “as is.”
However, not all banks work their foreclosure inventory with a quick sale in mind. For example, Wells Fargo Bank has been known to reject early purchase offers. Instead bank officials attempt to increase the value of the property though maintenance and repairs.
Even so, a local broker who asked to remain unnamed said this practice sometimes results in a lower price being paid for the property due to the rapidly declining market. For example, a local bank received a bid shortly after foreclosing on a home for $270,000, substantially below the note owed on the property. After rejecting the offer, the bank made a number of improvements and covered utility bills for approximately a year before accepting a bid of $240,000.
Home prices peaked in July 2006 and according to the Walnut Creek-based insurer’s Market Risk Index, prices are expected to plummet through September 2010.
Further risks of continuing declines appear to be concentrated in California and the Eastern Seaboard, according to PMI Mortgage Insurance Company. Market analysts predict prices will decline another 15 percent before leveling off.