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Why You Should Buy!

When home prices fall, the buyers come out.
In this market, they have plenty of homes to choose from.
Story by Chris Thompson 

It’s no secret. The state of real estate is much different than it has been in the last few years. We read and watch news reports every day telling us how sales are down and foreclosures are up. With all this news, who would want to make a real estate transaction in this market? Why would anyone look to touch local real estate at all?

Bakersfield Life gathered a group of real estate professionals to sit down and talk about the local market from their
perspective. Understanding the current situation, we wanted to know what is really going on and talk to those who are in the know.
     Coming together at the table are five people who understand this change of events and have been through it all before. Jon Busby of Team Busby is a veteran agent with Bakersfield Premier Realty; Ken Carter is president of Watson/Touchtone Real Estate; Todd Sweaney is the owner of Sweaney Construction; Sheryl Gallion hails from Ticor Title; and Linda Schubert joins the conversation from Buena Vista Mortgage Company. Our conversation took place on Monday, March 10, 2008.
     Believe it or not, transactions in local real estate are still moving, albeit not at the pace of the last few years. Bakersfield is, along with most of the country, off pace year over year, but yet, people are still selling and buying.
      “The buyers are coming out,” says Busby. “It’s a fear of not capturing a home at a decent price. The prices are more aggressive than they were. Some of the buyers are going to wait for the bottom, but no one knows where the bottom is going to be.”
The homes that are moving these days tend to be from the lower end, priced at $250,000 and under. When these homes are priced right, some sellers are receiving multiple offers.
     “There are some indicators that show the market is willing to go above the asking price,” says Carter. “This is a good indicator.”
     New to the real estate market are properties that have been foreclosed and are now owned by real estate companies looking to sell them. Some of the REO’s (real estate owned properties) and bank-owned properties are seeing teaser prices that are attracting multiple offers. “There is a bidding war for some of these,” according to Busby. “Some of these homes will sell for substantially more than that asking price. That is spurring a lot of buyer activity.”
     “The new breed of buyer is a buyer who wants a home that they’re going to take pride in as a home,” Schubert states. “They’re not out there to see how fast they can flip it.” Todd Sweaney echoes this notion saying, “They’re real buyers. They’re buying a home for their residence, for the long-term. They’re not in it to make short-term gains.”
     The swing to lower home prices has brought out a buyer that hasn’t been seen in large numbers in recent years. “More and more first-time buyers were priced out before; now they can get back into the market,” Schubert says. This is attributed not only to the lower home prices but also to a recent increase in the FHA (Federal Housing Administration) loan limits that have led to better financing to first time homebuyers. “You can actually buy a house for $380,000 and go in on an FHA loan,” she states. “Not only is the sales price right, but the loan limit has gone up so it opens up a wide variety of homes to buyers.”
     “There are so many young buyers in their 20s who couldn’t
afford a home,” says Busby. “Now, the mentality is different. It’s like, ‘Wow, I can afford a home now.’ My daughter, she’s in her 20s and she can afford a home now.”
One of the many differences in the market over the past few years is the financing buyers are looking into. In the recent past, many buyers were investigating all of their loan options, including ARMS (adjustable rate mortgages). “Now all they want to do is a 30-year fixed, which is the smart thing,” Schubert says. Tougher lending standards, such as the elimination of sub-prime and zero-down loans, are being attributed as a strong force that is bringing a more qualified homebuyer to the marketplace.
     “For the first-time home buyer and move-up buyer, it’s good out there. You just have to be cautious and comfortable in your loan program,” Schubert continues. 
 Successes in this market may not be seen on the outside of the real estate industry, but those on the inside bring up one word that was heard many times during the boom: investors. Signs are showing that investors are back, but they are coming to the table with a higher down payment and different intentions. “The investor now is not people from out of the area who are coming in and buying up blocks with little or no money down,” Carter says. “Instead you now have that disciplined homeowner saying ‘I’m going to invest in my own community.’ We have more of an owner-occupier scenario. I think the community benefits from this.”
     Even in this market, homes continue to be sold. “In the MLS (multiple listing service) in December there were roughly 10 home sales per day in Bakersfield,” Carter mentions. “In January it was 13 to14. February it was 19 sales per day and in the first couple weeks of March we were at about 29 sales per day. As the sales increase and the pending sales balloon, that shows a market that’s moving.”
     With the increase of foreclosures and short sale homes, there is a significant inventory of homes for sale in Bakersfield. Understandably, the number of homes for sale is more than the same time period in past years. In March 2008, there were 4,168 single family homes for sale in all areas covered by the local MLS. Comparatively, there were only a few less active homes for sale in March 2007 showing a total of 4,078. The month of March 2006 saw 3,164 active homes for sale.
     Although there are more homes for sale this year in the resale sector, there has been a decline in the amount of available newly-constructed homes on the market as some of Bakersfield’s public builders have pulled back on construction. “This slowdown has affected them as well,” says Sweaney. “A lot of them still have inventory, but they’re not adding more fuel to the fire,” he continues.
     “Our buyer hasn’t changed much,” Sweaney says of the world of high-end new construction. “They are much more cautious. Our buyer is a little more nervous of market conditions.”
     Joining the swing on home prices are additional factors affecting the prices of newly constructed homes. “Concrete and steel haven’t come down in price, but lumber and drywall, those things have come down a lot. It’s transitioned into lower construction cost. The demand has diminished and so commodity prices and labor prices have pulled back,” Sweaney says.
     When the transaction of a home sale begins, local real estate experts are seeing a few challenges when trying to finish the sale. Before a home can sell, it first needs to be appraised. With the continued lowering of home values, obtaining an appraisal equivalent to the asking price has become an issue. “Some of the appraisers are reacting to the market and that has become a big hurdle,” Busby says.
     “It reminds me of back in the  90s” says Carter. “The same rules with different dates. Now, you have to justify your price. And there’s nothing wrong with that. It’s back to normal.”
     Many potential buyers looking to make an offer on a home may be looking for more of a deal than the market is willing to offer. “The buyer mentality is ‘The seller is asking $300,000, lets offer $200,000,’” Busby says. “The market has changed, but it hasn’t changed that dramatically. It takes time for the public to realize that you can get a decent purchase, but you’re not going to get a steal. That’s what we’re seeing right now.”
     But, buyers continue to want a deal. And the REOs and short sales are all homes that potential buyers want to see. The foreclosure status isn’t necessarily detouring many potential buyers from looking at a home if the price is right. This is causing the resale market to become very competitive. Many of the existing resale homes are receiving offers only after bringing their pricing more in line with the others in the market. The additional inventory is leading the charge in the competitive pricing structure.
     These additional homes on the market are creating more trips to show properties to prospective buyers. “They want to see a lot of homes.” Schubert says. According to Busby, some want to see as many as 30 homes.
     “We have to educate the seller more than ever before. The sellers have to think like buyers if they want to sell their home in this market. It’s basic economics, supply and demand,” says Carter. One of the main points that sellers need to remember in this market is that they may sell their home for less now, but they will also buy their next home for less. “What you lose on one side, you’re going to gain on the other side when you buy a home. There is an equilibrium there,” Carter says. “You sell low then you buy low,” Busby echoes.
     It is certainly not the same market that it was in 2005-06. But homes are still selling and people are still feeling the excitement of being a homeowner. Sellers in this market need to be aggressive and actively market to the buyers. “You have to adjust to be competitive as a seller,” says Busby. “You have to create the ‘wow’ factor.”
     Traditionally, spring is a great time for local real estate. Signs show this year will be no different. “Notoriously, the second quarter has always been one of our stronger times,” says Gallion. “I was excited about March. We are already seeing the activity that I thought we would see in April or May. It’s earlier this year.”
     The outlook for local real estate is hard to predict but there are some important signs to watch. “If you look at the trends of the first quarter, I think we are all experiencing a lot of activity,” says Carter. “Open house traffic is strong. You’re getting strong activity in certain market segments and interest rates are still holding. I hate to predict markets, but if you go back to the statistics and you look at what is trending so far, there’s a chance we may be coming back.”