Home Prices Slip Slightly in County

HOME PRICES SLIP SLIGHTLY IN COUNTY
By MARIE VASARI, Monterey Herald Staff Writer

When it comes to real estate, perspective is everything. If you're a buyer, things are looking better by the day. Prices are beginning to inch downward, homes are staying on the market longer, and many of those squeezed out of the chance at homeownership as prices escalated in the past few years are now beginning to dream. For a seller who's watched the homes in his neighborhood selling fast and high, things are a little less clear.

Not that homes aren't still moving, and commanding record prices when they do. It's just that the runaway real estate market of the past few years may be finally settling in to a more reasonable jog. The median home price in Monterey County declined from $680,000 in September to $675,000 in October, the third consecutive downward month, down from a July peak of $698,000. But even with the dip, homes are still significantly higher than a year ago, when the median price in Monterey County was $578,000 for October 2004. Considering how much appreciation there has been in the real estate market, the downward shift was almost inevitable. Five years ago, the median home price for Monterey County was $347,000; a year before that, $289,900.

Is the real estate bubble about to burst? Not according to real estate agents, most of whom shun the ''bubble'' term. Homes are beginning to stay on the market longer, but some of that is a normal seasonal pattern, said Sandy Haney, chief executive officer of the Monterey County Association of Realtors. Historically, said Haney, it takes about 90 days to sell a house. But during the land grab of the past few years, it wasn't unheard of for houses to sell in a single day, sometimes before hitting the multiple listings, or for desperate buyers to bid well over a home's listing price.

Eventually, as homes stay on the market longer, sellers will lower listing prices. But what Haney predicts is no steep drop, but a gentle decline as the market stabilizes. "We've all been holding our breath," she said, "waiting for the market to adjust." The only surprise was that it took so long. Haney expected it three years ago. There's little chance home prices would crash, she said, because unlike stocks -- intangibles with perceived value -- a house is a physical commodity with emotional and inherent worth. If the market softens, people don't just toss away their house.

"We're very pleased it's adjusting," said Haney. "It wasn't a real estate market, it was a Disneyland market."

Inventory matters, said Bert Aronson, broker and president of RE/MAX Monterey Peninsula's new Renowned Properties Information Center in Carmel. The volume of homes being added to the market each month, at some point, was bound to catch up to itself. Single-family home inventory grew 5.5 percent for Monterey County in October, the 10th consecutive month of growth. That high level of inventory, said Aronson, is finally starting to push prices down. October home sales dropped 24.2 percent from the previous month, said Aronson, but even with three straight months of declining median home prices, that's still an annual appreciation of 16.8 percent. Housing sales broke records for the fifth year in a row, said the National Association of Realtors, and even with talk of a slowdown in the market, the year ahead is expected to be the second best year in history.

"The slowdown amounts to a tapping of the brakes on a hot market," said David Lereah, chief economist for the National Association of Realtors. "Home sales are coming down from the mountain peaks, but they will level out at a high plateau -- a plateau that is higher than previous peaks in the housing cycle." In his estimation, the shift toward a "more normal and balanced market is a good thing."

Real estate continues to be one of the soundest investments, said Thomas M. Stevens, president of the National Association of Realtors. Regional markets may experience a temporary rise or fall depending on jobs and supply, but, Stevens said, the national median home price has never declined since 1968, the first year solid record-keeping began. Nationally, median prices for existing homes rose 12.7 percent in 2005, to $208,800. That is expected to climb an additional 6.1 percent next year, to $221,400. Median new-home prices were expected to grow by 5.5 percent, to $233,100, in 2005, and growth projections for 2006 are even greater -- a 7.3 percent hike, to $250,100, mostly because of high construction costs.

California had an housing affordability index in October of 15, meaning that 15 percent of households statewide can afford a median-priced home. That's four percentage points lower than in October 2004. By comparison, the Monterey region, which includes Monterey and Santa Cruz counties, had an affordability index of 9 this October, dropping two points from a year ago, said California Association of Realtors statistics. As home prices pushed ever more skyward, financiers -- and buyers -- have looked for ways to adapt.

Last week, the California Association of Mortgage Brokers issued projections for 30-year fixed rate mortgages to rise to an average of nearly 7 percent, and for 40-year fixed rate loans to become more popular in 2006, as buyers struggle with increasing issues of affordability. "A moderate increase in mortgage rates should not concern homebuyers," California Association of Mortgage Brokers president John Marcell said in issuing the association's annual Mortgage Forecast. "However, it is alarming that the housing affordability crisis will continue, making it difficult for first-time home buyers to qualify for adequate financing." To meet those challenges, more buyers may also turn to reverse mortgages, 100 percent financing and adjustable loans with low beginning interest rates that later fluctuate. Marcell warned that while some of those loans may make homeownership a reality for some buyers, they can be a risk for those who fail to educate themselves adequately.

New real estate branches were opening this year at breakneck speed, and the influx of new agents was unprecedented. By June 2006, the Department of Real Estate predicts there will be 500,000 licensed agents in California. Haney says the Monterey County Association of Realtors has a membership of 1,700, double the membership of 10 years ago. But even more telling is the rate of recent membership growth, she says -- 62 percent have been with the association five years or less, and the past year alone saw 421 new members.

Keller Williams Realty Carmel started the year with about 15 agents in temporary office space in a former La-Z-Boy recliner store. When the permanent office opened two weeks ago, a team of 90 employees moved into the site, said team leader Janet Reilly. A Salinas office is on the horizon as well. Reilly attributes that growth to a company model of strong training and strong rewards -- the Austin, Texas-based company says it is the fastest growing real estate firm in the U.S., with close to 55,000 agents nationwide. But the market itself -- and its potential payouts -- has proved irresistible to everyone from entry-level workers to corporate executives.

Salinas school teachers Patrick and Myriam Kennelly have parlayed the purchase of a rental home into new full-time careers with Coldwell Banker, specializing in Spanish-speaking clients. At least for now, they've taken leaves of absence from their jobs, but expect to return to teaching in the future. Their first home purchase, seven years ago, was a guacamole-green house in Soledad for $139,000. They were so strapped, they didn't have money for closing costs, and while they hated the color of the house, couldn't afford to repaint. So, Patrick Kennelly said, they asked themselves what went with guacamole and painted the doors, trim and picket fence "sour cream white." When ready to rent, they were too broke to advertise, so they put up a hand-lettered sign in the window. The Monterey couple bought a second home in 2000 for $145,000, which recently was appraised for $390,000, and have since sold to clients from Soledad to Marina. While there have been a few million-dollar homes, most of their customers are buyers "who need to put some sweat equity into their case." Kennelly said, "We deal with the hard cases, the people who don't think they're going to be able to buy a place."
"We found our work cut out for us among people who are working hard, making money, but don't really know the process of buying a home," he said. "When that market slows down, you can be sure Soledad, Marina, will still be chugging along, because the Latino community has a need to buy those homes."

But selling real estate is more complicated -- and more competitive -- than most people realize, and Haney said many agents spend more than they make for their first year. So like the market itself, the profession may be due an adjustment sometime soon. Real estate's always been, in the long run, cyclical, said Haney. It's just that this cycle happened to include the longest upward trend in history. But some of the characteristics of Monterey County, in particular slow growth and water issues, and workforce housing needs for the agricultural and tourism industries, may help insulate it from too much of a downturn. Haney predicts that, after the cooled-off winter period, buyers will start showing interest again by March, if not sooner. And people who got priced out of the market when home ownership slipped out of their reach may find themselves written back onto the pages of possibility. "We're going to see more changes in the real estate industry in the next two years," said Haney, "than we've seen in the past 10."

It's an industry that's evolving in other ways. RE/MAX's Aronson has just opened a satellite office in Carmel that addresses the shifting roles of agents and buyers. The Renowned Properties Luxury Home Information Center looks less like an office, more like a living room, with 50-inch flat-screen panels so that customers can relax with a cup of coffee while scrolling properties, take virtual tours of properties, get stock quotes on Bloomberg or pick up local magazines, newspapers and guidebooks. The new concept targets in particular the out-of-town visitor who may be leaning toward a luxury home in Pebble Beach or Carmel, but it's also a concession that would-be buyers are generally entering the process of home shopping much more educated as to the process.

"The typical buyer starts on the Internet ," he said. "They may look on the Internet for months before they actually want to contact an agent." Typical, says Aronson, is about 70 percent these days. It's also less intimidating, said Aronson, than a traditional sales office, "a nonthreatening environment where people can start learning about the process." Those who request so can get statistics and reports on the local real estate market and set up online searches for listings. Technology is key these days to making the process of buying and selling homes more efficient. Aronson can set up an automated search that forwards links to properties meeting a person's criteria at whatever interval they request, up to every two hours. Homeowners can also stay up-to-date about the property values in their neighborhoods. Customers can now call up area maps identifying their properties of interest, color coded by price, with detailed information on each site with the scroll of a mouse. In February, RE/MAX.com will launch its first international listings directory. It's a logical progression, particularly for a real estate brokerage that serves an international client base. But buyers closer to home, said Aronson, have also changed.
"The buyer today is far more sophisticated," said Aronson. More time online means buyers are more focused on what they want and on what they can afford. "In the old days," he says, "the average was to visit 15 houses. Nowadays, it's six or seven, because they've already sorted through everything." Aronson's office is the first of its kind among RE/MAX's international franchise. "We are pioneers," said Aronson. "We're trying something totally different -- we'll know in a year whether we've done the right thing." But no matter what, technology is just a tool. "You still have to get belly to belly," said Aronson. "People still have to go visit the property. We're trying to build relationships with people."

Monterey Herald, 12/20/2005.