Sonoma So Over?
Sonoma County and the Bay Area are near the top of the PMI risk index for home price declines over the next two years. The index tracks prices, affordability and jobs to determine chances for price declines in the nation's metropolitan areas.
"The last year things have been moving up quite a bit," Van Akkeren said.
The latest PMI index projects a 45 percent chance for a price decline in Sonoma County over the next two years. The Bay Area has a nearly 48 percent chance for a price decline.
As Sonoma County's housing market eases from record heights, the past year will be remembered as the time when sales and prices peaked after a remarkable seven-year run.
Year-end sales reports cap a year that saw rising mortgage rates and sinking affordability trigger a slowdown that had been predicted for two years.
"It was great, a fabulous year. It was different than any other market I've been through in 36 years. It kept climbing for so long," said Beth Robertson, a broker with Century 21 Classic Properties, in Rohnert Park. "Now it's flattening."
For 2005, Sonoma County home sales fell short of the 6,000 mark for the first time since 2001.
"As buyers stepped back from the bargaining table sales slowed," said Rick Laws, Santa Rosa manager for Coldwell Banker."As a whole, 2005 was the peak of the market.
The key thing for the market is rates started to go up finally," said Leslie Appleton-Young, chief economist for the California Association of Realtors.
The time it takes from when a home is listed to when it is put under contract has risen rapidly in the past four months and is now at 90, the highest level since February 2002.
The median price for single-family homes in Sonoma County soared 7.2% to $614,00 in January from the month before, a year-over-year gain of 14.8%. This is only $4,450 short of the record high set last August.
Conversely, home sales sank 29.7% from the month before and were off 23.2% year-over-year. That's four months in a row home sales have been off by double-digits from the year before. Not only that, the 268 homes sold were the lowest single monthly total since January 1998!
The sales price to list price ratio for single-family home fell one half point to 97.5%, continuing the downward trend that was interrupted in December. The condo ratio dropped 0.4 of a point to 99%.
Affordability sunk to record lows as prices rose to new heights. While the percentage of households that could afford to buy a home had been declining, it dropped significantly over the past year.
Only 7 percent of households could afford a median-priced home in Sonoma County at year's end compared with 12 percent a year ago.
A Sonoma County household needed a minimum income of $152,595 to buy the typical home, based on prevailing interest rates for a 30-year mortgage. A year ago, the minimum income needed was $124,650.
Buyers had to increasingly stretch financially to purchase homes. A majority turned to interest-only and other adjustable-rate loans, often making little or no down payment when purchasing homes.
Adjustable-rate mortgages accounted for 69 percent of loans to buy Sonoma County homes last year and only 31 percent were 30-year, fixed-interest loans - a reversal from just two years earlier.
Interest-only and loans with a monthly range of payment options offer lower monthly mortgage payments. Owners count on short-term price gains from the market to build equity in homes and then refinance or sell, often within three to five years.
"We had ready availability of significant below-market-rate financing," Appleton-Young said. "If the mail I get at home is any indication, the lending community has been fairly aggressive at advertising them.
"Relying on the housing market to build value works when appreciation is strong. But if prices drop, homeowners might end up owing more than a home is worth.
Prices dipped in September and October 2005 as sales dropped due to rising interest rates and increasingly cautious buyers. Homes stayed on the market longer and supplies built back up to three-year highs. Sales slowed due to affordability concerns among more buyers, Robertson said."There's a huge desire still to buy a home in Sonoma County. It's just the prices have gotten unreachable," she said.
Sellers accustomed to bidding battles now face having to cut prices some and negotiating more with buyers. Credits for repairs, longer inspection and escrow periods, and even paying closing costs are indicators that the buyers have more leverage.
"The market has leveled off and is starting to go the other way. I'm confident that the sellers will negotiate more," Jeanne Delario of Coldwell Banker said.
Also: From Dan Gillmor's place
"Marketwatch: Getting in at any price. Homebuyers increasingly approach home loans much the way consumers buy cars, shopping for the lowest possible monthly payment to avoid being left out cold on the housing-boom sidewalk. But the explosion of such products, a sign of looser lending standards, suggests many consumers are taking on complex loans without fully understanding the risks they face when interest rates rise in the future, some analysts say. And that could pose a ripple effect in overheated real estate markets.
See also, from the Washington Post, "It's on the house,", an article about the dangerous trend in which "everybody is paying for everything with (borrowing on) home equity" -- and we, the taxpayers, subsidize this. The home mortgage interest tax deduction is a questionable policy to begin with, but we turn that into a subsidy of totally unrelated spending by extending the deduction to loans on equity for spending that has nothing whatever to do with home ownership.
We are less a nation of risktakers than a culture of reckless spendthrifts."