Savvy buyers enticed by falling prices, decent inventories and low interest rates are beginning to test the waters again, local real estate experts say

 

Kathy Hilstein watched the housing market carefully last year, waiting for prices to fall.

In November, she decided to buy an investment property— a foreclosed condominium in Santa Maria. In March, she closed escrow on a second foreclosed property, a two-story home on an acre off Los Berros Road in Arroyo Grande. Hilstein, the owner of a cleaning service, liked it so much that it’s now her permanent residence.

“I kind of knew the market would slow down,’’ said Hilstein, who found the properties during four foreclosure home tours. “I wasn’t necessarily looking at foreclosures. I was just looking for an in-

vestment property with a good price for the location and a good rental return.”

While losing a home can be devastating for many people, some in the county are finding opportunities for home ownership that may not have been available before. Whether they’re snapping up investment property or buying their first house, residents and real estate professionals say there are deals to be had, even in choice neighborhoods.

Looking for bargains

Sales are slower than this time last year, but prices have fallen, and that’s one reason why some buyers are beginning to look around, say those in the industry.

There were 635 homes sold in the county from Jan. 1 through April 30 (including single-family, condos and planned-unit developments) compared to 877 during the same period the previous year, according to the Central Coast Regional Multiple Listing Service. That’s a drop of nearly 28 percent. There are 362 pending sales, including a home in escrow with the buyer not having to sell her home to buy the new one. In April 2007, there were 421.

But the median price of a home in San Luis Obispo County during that period stood at $480,000, down from $545,000 the previous year.

“If people are sitting on the fence waiting, there’s not going to be a bell that rings that says ‘OK, it’s over,’ ” said Jim Liptak, president-elect of the California Association of Realtors and a broker with Country Real Estate in Paso Robles.

Realtors point out that interest rates remain low and inventory is up slightly in certain communities, which gives potential buyers more choices. In San Luis Obispo, for example, there were 218 homes on the market as of April 30, compared to 193 at the same time last year. In Morro Bay, there are 116 homes for sale, up from 83 in April 2007.

Sellers also are being more realistic, Liptak said.

“Sellers that want to have a sold sign planted in their front yard have to be,” he said. “If they aren’t, then they’re kidding themselves. The prices you could get two years ago and the price today are a totally different thing.”

Leslie Appleton-Young, economist with the California Association of Realtors, said the housing market isn’t expected to rebound quickly, but significant adjustments in prices have improved affordability for qualified buyers. That bodes well for the future of real estate, which can be a smart move for people investing for the long-term. Property also is proving to be a bargain for buyers outside the United States who can take advantage of the weaker dollar.

“We will start to see a gradual improvement (in 2008) of sales and a little bit of softening in prices,’’ said Appleton-Young, noting that 2008 is expected to be the bottom in terms of transactions. “This market in California can change very dramatically depending on where you’re looking. Even in Stockton, which is considered Ground Zero for foreclosures, there are areas that are doing well. My big takeaway from the market is that it’s all local.’’

Linda Midkiff, a Realtor with Coldwell Banker Premiere Real Estate in Paso Robles, said some properties—bank-owned and non-bank-owned—are being sold at competitive prices.

A 3,000-square-foot house in Paso Robles recently sold for $509,900 one day after being on the market, she said. In another instance, Midkiff said a bank-owned home was on the market for $341,000. Her clients made an offer at $355,000, but she was told that they were not among the top three bids.

“If a house is priced well it will sell at its current price, close to it or above it,’’Midkiff said. “Last year, the phone didn’t ring. This year, the buyers are out there. They want the best deal they possibly can, but they’re willing to put in the offers to see if they can get something.”

Not for novices

But real estate experts also caution that buying a home now has its challenges for firsttime buyers and investors.

As a result of the subprime crisis, lending standards have tightened and some creative financing options, such as 100- percent financing and stated income loans, are limited and that means potential homebuyers must have higher credit scores and down payments.

“Your credit score (needed to qualify for a loan) is going to have gone up 20 to 40 points,’’ said David Brown, president of the North Central Coast chapter of the California Association of Mortgage Brokers and broker with Residential Mortgage Corp. in Los Olivos.

Brown noted that homebuyers today will pay a premium on the price if they have less than a perfect score.

Even so, Brown said there are programs for potential buyers to tap, including seller financing (whereby the seller has enough equity in the house to pay off the loan and give the buyer a first or second mortgage and charge whatever interest rate they agree to), and Veterans Affairs and Federal Housing Administration loans. FHA loans have competitive rates, and a purchaser can have less of a down payment and past credit problems. FHA loans are made by lenders approved by the federal agency, which insures mortgages nationwide.

As part of the Economic Stimulus Act of 2008, there has been a temporary increase — through Dec. 31 — of the conforming loan limit in certain areas. The idea behind this increase is to generate more activity in the housing market by making it a little easier for people in higher-cost areas to buy homes, real estate experts say. The 2008 loan limit set by the FHA, Fannie Mae and Freddie Mac for San Luis Obispo County stands at $687,500 for a single- family home. The maximum loan limit — depending on the county in the U. S. — is $729,750.

Foreclosures and short sales, in which lenders allow homeowners to sell the property for less than what is owed rather than let it slip into foreclosure, also are becoming more common, Brown said. In the first quarter of this year, foreclosure filings in San Luis Obispo County — including notice of defaults, trustee sales and real-estate owned by the lender — jumped 97 percent from the same quarter last year, according to RealtyTrac. There were 432 filings in the first quarter, compared to 219 in the first quarter of 2007.

San Luis Obispo County is faring better than other communities with high levels of foreclosure activity. And the recent Federal Reserve interest rate cuts may help to stem or postpone some foreclosures as many homeowners facing resets of their adjustable-rate mortgages may not see their interest rates climb as much, said Daren Blomquist, marketing communi-cations manager for RealtyTrac. But savvy buyers who know the market and have a handle on their own finances will still be able to find good properties.

“There are already quite a few people in the pipeline who have defaulted on their loans, and we haven’t seen them hit foreclosure yet,’’ he said.

Lynn Cooper, president of Pacific Oak Foreclosure in San Luis Obispo, said buying a foreclosed property or property sold at auction at the county courthouse can be worthwhile if it’s done with the help of an adviser. Buying at auction requires a cashier’s check in hand, and the property is sold in as-is condition, he said. That condition may be shoddy. There could also be federal tax liens against the property that a foreclosure would not eliminate, and so it’s important for buyers to do their homework.

Buying property that lenders have taken back also comes with risks, he said.

For instance, lenders in general won’t deal with contingencies such as having to sell a home in order to buy a new one. Lenders also may be slower to respond to counteroffers or questions about the property and are not required to have a complete history on a home or provide lengthy disclosures about the property.

“Most are investors, not firsttime homebuyers,” Cooper said of those asking about foreclosed properties. “This is a league for professionals. You have to have cash and know what you’re doing.”

Finding the right place

For Nancy Sprague and her husband, John, buying a foreclosed property was a wise decision. Sprague, who has purchased investment property before, recently closed escrow on a single-story investment house in Nipomo. The three-bedroom, two-bath home sold for about $150,000 less than what it listed for more than a year ago.

“The floor plan was very good, and if I had to live in it, I could be happy,’’ she said. “That’s my criteria for buying anything. Even if it’s an investment, if it’s not something I would be willing to live in or my children would live in, then I won’t buy it.’’

With the help of real estate professionals, Arroyo Grande residents Jessie Wilson and his wife, Nicole, used an FHA loan and money from an inheritance to buy their three-bedroom, two-bath, single-story home off Halcyon Road.

The home was purchased through a short sale for $362,000. They had a down payment of about $20,000 and bought the home, which closed escrow on St. Patrick’s Day, with a 30-year fixed mortgage.

“The buying experience was an adventure, but we feel like we ended up in the right place,” said Jessie, who works at a hardware store. “I would say get out there and take a leap of faith. If you feel like you’re in the position to do it, then you can do it.’’

Hilstein, who has six rental properties in the county and Santa Maria, certainly had that attitude when she jumped into the market.

“For me, it’s a no-brainer,” said Hilstein, who bought her Arroyo Grande home for about $80,000 under current market value. “I would kick myself if I didn’t buy property right now. The market will go back up. I can’t imagine it not going back up.”

Have you or are you thinking about buying a property in foreclosure?