With trepidation, home sales in Morgan Hill have accelerated in
recent months.
With trepidation, home sales in Morgan Hill have accelerated in recent months.
The sale price for some homes on the market is still up to 40 percent lower than a year ago, and tighter regulations enacted in response to the housing crisis that some lawmakers saw as a result of loose lending practices have botched some deals.
But overall inventory is down, and that is either good or bad news for the market’s buyers and sellers: foreclosed and bank-owned properties have almost all been swept off the market, signaling a return to normalcy; or a new wave of foreclosures could drag prices down even more, according to local and regional real estate professionals.
“We think the free-fall has ended,” said Morgan Hill Realtor Julian Mancias. “For a while we were going down, down, down. But we’ve hit the bottom, so we think. The problem is now we have to sort it all out. The bottom that we think is the bottom is now full of bank-owned, short sales, loan modifications, bankruptcies, asset managers – all these things we have to work with that did not exist a year ago.”
In other words, the residential real estate crisis has likely passed its worst point, but it could be a long time before the market returns to “normal,” where virtually all sellers get more for their home than they paid.
According to statistics from the Multiple Listing Service database used by industry professionals, the median price of homes sold in Morgan Hill in June 2009 is down by 30 percent from a year prior. In June 2008, the median was $817,500, but was most recently reported as $575,500.
Furthermore, the number of sales per month is up from a year ago, when the nationwide housing crisis was at its worst. In June 2008, 32 homes sold in Morgan Hill. In June 2009, that number was up to 43.
But not many sellers are making any return on their investment. More than half of existing home sales in the last few months have been either short sales or bank-owned sales, as reported by numerous Morgan Hill real estate people.
According to the MLS, 40 home sales have closed in Morgan Hill in the past 30 days. Twenty of those were bank-owned or short sales, at a median sale price of $537,500. The remaining transactions were “traditional” sales, at a median sale price of $580,000.
Short-sales occur when a homeowner still owes more on their loan than the home is worth, and knows he or she will not be able to make upcoming payments. Instead of going into foreclosure and tainting their credit record for years to come, the owner opts for a short sale, in which they place the home on the market and any offer must be approved by the bank that holds the loan. These sales usually fetch significantly less than what the owner paid for the home.
“Short sales are your biggest nightmare,” Realtor Kathy Kahlenberg said. “Nobody really understands the rules. Everybody is trying to figure it out as they go, and it’s not a clear-cut process.”
A somewhat smoother but still not “traditional” transaction is the bank-owned sale. These are homes that have already been fully foreclosed on and taken over by the bank who held the defaulted loan.
“(Bank-owned homes) are sold as is. People think they’re getting a better deal because it’s a bank-owned home. Sometimes they do, but that’s not necessarily true,” Kahlenberg said.
Some people in the industry have predicted yet another wave of foreclosures and bank-owned homes to hit the market, following the inundation of such properties last year. That speculation has been driven by the onset of thousands of five-year adjustable-rate mortgage holders beginning to charge higher payments.
But a recent report from ForeclosureRadar, a company which tracks foreclosures in California, indicates that next wave may not happen. In Santa Clara County, 1,543 notices of default were filed in July, about 30 percent less than one year ago. While that’s higher than in many preceding months, banks seem to have voluntarily become more lenient on demanding full mortgage payments from lenders, giving them more time to pay or cutting rates.
“More homeowners are now sitting at the brink of foreclosure, just days away from the next scheduled auction date, than ever before, yet we simply aren’t seeing the wave of foreclosures many predicted,” said Sean O’Toole, founder and CEO of ForeclosureRadar.
Local professionals have also complained about new federal regulations that went into effect May 1, and change the appraisal process which often dictates how much a home can sell for. The Home Valuation Code of Conduct no longer allows banks to choose their own appraiser when issuing a loan for specific homes, according to Michael Gallagher of Avantis Capital in Morgan Hill. Instead, appraisers must be approved through a management agency.
While the law might accomplish its intent of creating distance between banks and appraisers, it has also made it more likely that people appraising Morgan Hill homes are from out of town, and don’t know the local market, Gallagher said. Thus, many times the appraisals are more conservative than they should be, bringing down the value of a home and causing the buyer to go through the loan approval process again.
“I did a deal (in Morgan Hill) where the appraiser was from Stockton. It was a disaster. We had a buyer willing to pay a specific price, yet we didn’t have an appraiser to support the value, and we can’t get the loan approved,” Gallagher said.
