News - Local

Published: Sunday, Aug. 09, 2009

Is SLO County's housing market on the mend?

THE POSITIVE: Prices may be bottoming out, interest rates are near historic lows and tax credits are enticing buyers once again THE NEGATIVE: A weak economy, new home appraisal rules and fears of rising unemployment continue

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With lower prices, historically low interest rates and tax credits moving some first-time buyers off the sidelines, San Luis Obispo County’s housing market is showing signs of stability.

But whether the area is well on its way to a recovery is still up for debate.

Economists and local real estate agents offer conflicting views on when the market will likely reach the bottom and say there are many unknowns that could put the brakes on a rebound. Among them: the specter of rising unemployment, concerns over new regulations within the real estate appraisal industry, a potential backlog of bank-owned properties, and lingering uncertainty about the economy, they say.

“People are taking advantage of the pricing that’s out there right now,’’ said Jim Liptak, a North County real estate broker and president of the California Association of Realtors. “I would like to think that we have turned a corner, but I remain cautiously optimistic. If we look at the landscape in front of us, the economy overall is very fragile.”

State impact

Indeed, weaknesses in the economy could hurt a housing market recovery, said Kirk Lesh, senior economist with California Lutheran University’s Center for Economic Research and Forecasting. The most pressing, he said, is how the state’s troubles might affect San Luis Obispo County, which has a high concentration of government jobs.

“If you are a government worker getting furloughed … you’re not going to buy a new home if you’re concerned about losing your job,’’ said Lesh, noting that Cal Lutheran economists expect a rise in unemployment for the rest of this year and into 2010.

Lesh added that, while the number of foreclosures in the county is much lower than in other communities across California, bank-owned properties — those taken back by the lender — have increased, with 122 foreclosures recorded in July, up from 83 the same month a year ago, according to ForeclosureRadar.com, an online foreclosure tracking firm.

Some in the real estate industry said that more foreclosed properties will hit the market in the fall as programs aimed at postponing foreclosures lapse and banks begin releasing more of them.

“The housing market, I hate to say it, can go down farther,’’ Lesh said. “I don’t think we’ve hit the bottom yet. I do agree that we’re getting close, and once we get there, we’ll bounce around the bottom for a while. I don’t see a big pickup in sales or prices.”

Signs of stability

Some are taking a rosier view of where the local real estate market is headed.

Mark Schniepp, economist with the California Economic Forecast in Goleta, said home prices in California have been stable since about March and added that sales of foreclosed homes are starting to give way to more conventional home sales, which will “stabilize the market and cause prices to tick up a little bit.”

“You always want to buy at the bottom, and it’s pretty clear that this is it,’’ Schniepp said. “I think we hit the bottom in the spring, and we’re starting to come out of it. We will see more convincing signs of a recovery toward the end of the year.”

Schniepp acknowledged that the county is “a little more vulnerable” than others because of its dependence on government jobs, but he argued that job losses here will not be enough to jeopardize a comeback.

While Schniepp’s outlook is more optimistic, he noted that there are several factors in play that could dampen a turnaround, including new rules governing the real estate appraisal industry.

Those regulations, which took effect May 1, prohibit mortgage brokers and real estate agents from choosing appraisers or discussing appraisals with them. Appraisals are done by third-party appraisers selected by appraisal management companies.

The rules, according to some in the real estate industry, have increased costs to consumers and lowered the quality of appraisals because the appraisers may or may not have knowledge of the local market. The rules were the result of a settlement by Fannie Mae and Freddie Mac, two of the largest purchasers of secondary mortgages, with New York’s attorney general. Liptak, president of California Association of Realtors, recently met with California Attorney General Jerry Brown to discuss the impacts of the rules on the state’s consumers. In his meeting, he noted that California already had its own appraisal regulations in place.

“They’re (appraisals) coming in a lot lower, and it’s not allowing the lender to lend the full amount a buyer needs to purchase a home,’’ Schniepp said. “It’s the same with credit conditions. They were too loose, and now, they’re apparently too tight. It’s like Goldilocks … it’s too hot and then it’s too cold. Ultimately, it will be just right, but we’re not there yet.”

Liptak said he is hopeful that the worst is over.

“By this time next year, we will certainly know which way we’re going,’’ he said. Time to buy?

For some eager buyers, now is the time, despite the risks of an uncertain economy.

Megan Silva and her husband, Daniel, purchased their first home in March for less than $350,000 in Arroyo Grande after watching prices for about nine months. The couple, Cal Poly graduates and engineers, bought their three-bedroom home through a short sale in which the lender accepts less than what is owed on a home to avoid foreclosing on the property.

“It was the low interest rates and the low prices,’’ said Silva, adding that they also took advantage of an $8,000 federal tax credit. “We never thought we’d be able to buy a house in California.”

Julianne Schmidt and her husband, Michael, also had been keeping an eye on the market when they found a foreclosed, three-bedroom home in Nipomo. They bought the house in April and benefited from the $8,000 credit for first-time homebuyers.

“We had been watching the same development of houses for two years,’’ Schmidt said. “When we started looking at them, they were in the high $300,000 range. Then, two years later, they were in the $200,000s and we were able to go forward.”

Schmidt, a supervising social worker for the Family Care Network, and her husband, a medical technician and reserve firefighter for Five Cities Reserve, said the anemic economy was not a deterrent.

“I guess we went into it both knowing we were stable in our jobs and that the economy would get better and that we would come out a little bit ahead someday,’’ she said.

Susan Patterson, an operations manager for a Santa Barbara-based medical supply company, is trying to buy her first home so that she can be closer to family and friends in the South County. Patterson is looking for a two-bedroom home or condominium in the $250,000 to $320,000 range.

“The prices are actually something that I can afford now,” she said. “It’s unpredictable, but this might be the only opportunity I have to buy property.”

Patterson said she’s using her savings and is hopeful that her job remains steady.

“When you’re making a big investment like this, of course it’s terrifying. But hopefully the advantages will outweigh the risks.”