Central Valley

More buyers moving in to first homes

First-time home buyers, shut out of the market when prices skyrocketed in the first half of this decade, are becoming the dominant force in an otherwise battered market.

The trend -- which has yet to show up in statistics -- represents a ray of hope to an industry hard hit by a subprime mortgage crisis that has lenders nationally writing off billions in losses and many central San Joaquin Valley neighborhoods dotted with empty houses.

Experts say falling prices and interest rates and an abundant supply are enticing would-be first-time home buyers off the sidelines.

Those who can meet higher lending standards are in a good position to benefit from the housing bust.

Real estate agents -- whose deserted offices provide stark contrast to the go-go atmosphere of just two years ago -- are delighted.

"I'm waiting for [a first-timer] right now," Fresno real estate agent Joan Jolly said while sitting in her car in front of a house listed for sale.

The house was owned by a bank -- an unfortunate consequence of a sinking real estate market where property values have tumbled so much that thousands of homeowners owe more on their houses than they are worth.

About 12,330 houses in Fresno County started the foreclosure process in 2007, according to RealtyTrac, a housing data service.

The foreclosures, combined with new houses offered at sharp discounts by builders desperate to sell and typical sellers going through a change in lifestyle, are giving buyers ample choice.

About 3,900 houses are available for sale in Fresno and Clovis, and, thanks to falling prices, the percentage of families in Fresno County that can afford an entry-priced house has climbed to 44% from 19% at the peak of the housing boom in 2006, according to the California Association of Realtors.

The median price of a house in Fresno County fell 16.7% over the last year, according to Zillow.com, to $226,776.

Although the anecdotal evidence is strong, it has yet to reveal any solid evidence of a turnaround.

However, it was enough for Don Scordino, president of the Fresno Association of Realtors, who offered the prediction: "This is going to be the year of the first-time home buyers."

Matthew and Charity Johnson, two 27-year-olds expecting their first child, staked out the neighborhood they wanted and even the home builder. "We confirmed the ZIP code we wanted to be in [close to family] and identified the builder we wanted and waited," Matthew Johnson said.

They didn't have to wait long. In a few weeks, Michael Gavin of Guarantee Real Estate steered them to a house built a few years earlier by Granville Homes.

The original buyer defaulted, and the lender reclaimed the home.

Johnson, who sells water-well equipment and grew up in Sanger, wouldn't say how much they paid for the house, but said it was below market value. "If people have money for a down payment, it is a great time to buy," he said.

Marlin Ezell came to the same conclusion. The 29-year-old hospital employee is in escrow on his first house -- a 1,400-square-foot, 3-bedroom, 2-bath house with an addition near California State University, Fresno.

The sellers lowered the price from $250,000 to $199,000 after it sat unsold for 200 days. Ezell offered $185,000, and the parties settled on $192,000, with the seller paying $4,000 in closing costs.

Ezell said he couldn't afford to buy until prices fell: "I was priced out of the market until now."

He originally made a bid on a lender-owned house a few blocks away but was competing with other potential buyers. He said the bank took so long making a decision that he moved on to other candidates.

He said he is glad to be buying a house from the owner because he doesn't have to wait for approval from a bank. Also, he said scouring foreclosures for a suitable candidate can be a little like panning for gold.

"There are a lot of foreclosures in bad shape. It's tough to find a gem," he said.

Still, bank-owned houses are a draw, especially for people buying their first house. About 500 people toured a lender-owned home that Cliff Lloyd of London Properties showed at an open house a few weekends ago.

A few days later, he took a married couple to another foreclosure and found two other couples also touring it.

He even showed properties Christmas Eve and New Year's Eve.

"We're looking at great [interest] rates, great prices, a great inventory -- and the phones are starting to ring," Lloyd said.

Scordino said 10% of all the houses sold through Multiple Listing Service of the Fresno Association of Realtors in 2007 were foreclosures.

Real estate agents say investors also are back in the market, looking for houses to rent and, in some cases, flip. "I just sold a beautiful fixer-upper in University Portals for $160,000. They will put in $20,000 and rent it at $1,600 per month to four roommates from Fresno State," he said.

Financing and credit requirements have tightened up, but home buyers -- including those purchasing their first house -- are benefiting from the resurgence of the Federal Housing Administration, or FHA, loan. Ezell is using a version of the program to obtain a fixed-rate loan that does not require a down payment.

FHA loans fell out of favor because their limits had not kept pace with soaring values.

Today, it's different because prices are lower and more houses fall within the program's loan limits of $289,750 in Fresno County.

Nationwide, the use of FHA loans is up 40% from last year, with many of those used to refinance adjustable-rate mortgages, said Jerrold Mayer, director of the program support division for the Department of Housing and Urban Development.

"I was doing zero FHA loans three months ago, and now they are 40% of my business," said Chris Wolfe of Wolfe Mortgage Group in Fresno. "It is the last remaining loan if you don't have perfect credit."

While first-time home buyers are jumping into the marketplace, loan officer Michael Gilmore believes many others are waiting for prices to fall even more.

"I'm still of the opinion that incredible pent-up demand is still sitting on the fence waiting for things to bottom out," said Gilmore, who operates The Mortgage Professionals in Fresno.

"Prices have fallen, interest rates have fallen and there is blood in the water," he said. "It could be worse before it gets better, but we're getting near the end of this cycle."