On the Cusp of Long Overdue Correction

"Greg Sterbens thought his 3-bedroom, 2.5-bath home on a cul-de-sac in wine country was a great deal when he hung up a "For Sale" sign two months ago. List price: $685,000."

"After a month without offers, Sterbens lowered the price on his 2,250-square-foot home to $660,000. Earlier this month, he reduced the price to $639,000, making it the cheapest house per square foot in his Sonoma County neighborhood."

'"We have to be competitive, and we can't be greedy," said Sterbens, who is having a home built in Redding. "We've had a lot of traffic at the open house, but it seems like people are afraid to buy now. They don't know where the bottom is."'

"Fresh data show that California's market is not immune - and may be on the cusp of a long-feared correction."

"Throughout California, home values increased at the slowest annual rate in nine years, according to a survey released Wednesday by DataQuick Information Systems. It was the slowest increase since June 1997, when statewide home prices rose 2.8 percent."

'"We've got sellers out there who have not adjusted to the new reality," said Carla Giustino of Greenbrae-based Frank Howard Allen Realtors. Giustino urges clients with homes worth $1 million or more to drop prices by $50,000 to $100,000."

"The median Marin County home is nearly four times the national median, and agents say that's made some locals oblivious to the downward pressure. Too often, they're pricing their homes higher than comparable homes in their zip code, and they still expect bidding wars and multiple offers."

"Real estate experts say recent increases in interest rates have made zero-down mortgages and negative amortization mortgages far more expensive, excluding would-be entry-level home buyers."

"Daniel Nussbaum, CEO of Calabasas-based USA Realty.com, said prices have been declining for several months. But low-end buyers dropped out of the market, so sales were disproportionately clustered in the high end, making median prices seem stable."

'"Real estate growth has been nonexistent for 7 months, and market prices have been going down since March," said Nussbaum, a licensed investment adviser."

"On Wednesday, the Federal Reserve kept short-term interest rates unchanged, stating in a memo, "The moderation in economic growth appears to be continuing, partly reflecting a cooling of the housing market."'

"Last month's Fed statement used the phrase "gradual cooling of the housing market." The deletion of the word "gradual" panicked real estate investors, who fear that federal officials are bracing for a sharp decline."

'"The lack of a housing market is the single biggest issue facing the economy right now," Nussbaum said."

"David Schubb, broker for Cupertino-based Intero Real Estate, persuaded a client last week to lower the price on a 4-bedroom, 3-bathroom, 4-car-garage home in the San Francisco suburb of Walnut Creek. The home was listed at $879,000, but after three weeks without offers it was $849,000 - and the owner will pay the mortgage for the first six months up to $5,000 per month."

'"We were exploring interest rate buy-downs, making the buyers' payments, even throwing in a new car," said Schubb, who has been selling real estate for 37 years. Schubb said he's offering incentives he hasn't used since the stagnant 1970s, when he'd pay closing costs and give sellers interest-free loans to paint, add new carpet and spiff up homes for quicker sale."

'"I'm not a genius who invented this stuff - it's what we used to have to do all the time," Schubb said."