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Friday, Nov. 21, 2008

Home price swings back to affordable

County's average income can buy more house now

Kevin Reeves began house-hunting this summer with a strict budget of not paying more than $150,000.

He looked at about 20 bank-owned homes, trying to find the perfect fit for his family of four.

Six weeks later, the 41-year-old Reeves had moved into an Atwater home that overlooks a golf course and has a pool. It was $5,000 less than the upper end of his budget, and he believes it once sold for about $300,000.

Without the market's free-fall, he wouldn't be calling this house home.

"This market exists whether I take advantage of it or not," he said Thursday. "While I feel for those who bought at its peak, I'm not sure it was wise."

Like Reeves, hundreds of other residents are taking advantage of the cut-rate prices for homes and programs that help them get the keys to their first home.

It's hard to predict where the market's headed, local real estate agents say, because they're expecting nearly 8,000 foreclosures to hit the state in early 2009. More than a third will be within the Valley.

Merced County ranks as the most affordable place to live in the state as a result of the plummet of home values, according to a quarterly report by the National Association of Home Builders and Wells Fargo released earlier this week. Sacramento is second, Modesto third.

Just three years ago, Merced topped the list of least-affordable small cities and hovered near the top until last year.

Now, 60 percent of the homes on the market are within reach of families earning Merced's median income of $47,400. In 2007, that figure was 3.8 percent.

Affordable, as defined by the NAHB, is when a family spends no more than 30 percent of its income on a mortgage.

Scott Oliver, with Coldwell Banker Gonella Realty, said the prices are back to late-1980s levels and that the ranking is a good one for Merced.

"You'd like to see affordability higher than that," he said. "If you're at 60 percent, you have a great market."

Local agents sold 494 homes in October, the third-strongest month of the year. However, 315 homes still went back to the banks.

Of course, the housing market is still far from predictable, Oliver added. A handful of offers typically come in on homes in the range of $100,000 to $135,000.

He's been selling most of the houses to first-time homebuyers who are being helped by the Federal Housing Administration.

"It's created a little feeding frenzy," he said.

There's about a six-month surplus of homes, down from 18 months' worth in late 2006. Prices may have hit bottom, Oliver said. However, a flood of foreclosures, delayed by the state's request that major lenders work harder to keep owners in their homes, will probably crash in early 2009.

Historical data suggest the market probably won't stabilize for close to 11 months, he said.

Of course, these are extraordinary times and when the economy, driven strongly by home equity, recovers is anyone's guess.

Residents like Kevin Reeves are only helping it along -- and finding deals of a lifetime in the process.

Reporter Scott Jason can be reached at (209) 385-2453 or sjason@mercedsun-star.com.