Sellers' Market Demolishes First Time Home Buyer Credit

By
Real Estate Agent with Healdsburg Sotheby's International Realty

We're all seeing the return of a sellers' market for entry level homes. I've posted about it earlier and many of you commented that your areas are also affected. The saddest situations I see are for the first time home buyers struggling to finance a low priced home who are repeatedly losing out to cash investors. It's easy to say it's the market in action. It's harder when you are working with young couples with children trying to get started as home owners and get their kids enrolled in a good school.

I analysed recent sales data to try to show what has happened in Sonoma County. I listed just single family residences that sold since July 1, 2009 for less than $250,000, a level that is definitely entry level in this coastal California area. These are the homes for service workers, recent graduates, young couples, etc.  Earlier this year there were hundred of these properties available and most people with good credit could qualify to buy...and the homes sold quickly. The newer data tells a different story.

Chart Showing increasing overbids in Sonoma CountyThe chart includes a data point for each sale. The far left side of the chart includes lingering listings from late in 2008 and early in 2009. Intuitively, you will guess that these long time on the market homes are not going to sell for a premium. That's borne out by the fact that the data points are all near or beneath the zero line on the chart. As you read to the right, there are data points above and below zero reflecting overbids above the line and underbids beneath it. There's a strong mix of sales prices. The middle of the chart are primarily short sales that went into contract between February and May and they reflect a slight trend towards overbids, but still a good deal of balance.

The right side of the chart tells today's story. The large majority of sale data points are now above the line. I have made a greenish color bar from the zero line to the $8,000 range that reflects the first time home buyer's tax credit. Most of the data points are at or above that green bar. The positive effects of the tax credit are being eaten away by the higher demand for housing that has created the overbid situation. Every data point in the upper orange area has effectively had their tax credit consumed by the higher price they had to pay for the house.

The blue area under the zero line contains the data points for peope who were able to purchase their Sonoma County home for less than the listing price. These buyers are the ones who benefit the most form the first time homebuyer's credit. For everyone else, the tax credit may have had the unintended consequence of spurring the market to rise higher and faster than it would have otherwise. I think we can all be glad for a return of a real housing market that supports regular homeowners being able to sell their homes. On the other hand, I think I'm going to miss the days when I could find affordable homes for everyone with a job, decent credit, and a pulse.

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Topic:
Mortgage / Finance
Location:
California Sonoma County
Tags:
first time home buyer
sonoma county sales
home buyers tax credit

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Rainmaker
267,790
Dave Roberts
Healdsburg Sotheby's International Realty - Healdsburg, CA

Thanks Rick. I've always had great results choosing fellow 'Rainers for referrals. I won's say we're the greatest collection of agents the world has ever seen...but I could.

Aug 23, 2009 03:07 PM #2
Rainmaker
598,882
Donne Knudsen
Los Angeles & Ventura Counties in CA - Simi Valley, CA
CalState Realty Services

Dave - Ditto!  Great chart!  I bet my market wouldn't be all that different.  Around here, the 250k is pretty the price range for several of my first time buyers but it's also the price range a lot of investors also have the cash to buy and then rent out for more than what my first time buyers could have purchased it at.  Go figure.

Aug 23, 2009 10:34 PM #3
Anonymous
Anonymous
Brian

Hi Dave,

What is the X-axis on this chart? Is it just sequential sales of homes from 2008-2009? It would be interesting to graph the proportion of list price homes sold for by month. Of course, this doesn't account for the lowball list prices we have been seeing on the market as of late.

Cheers!

Sep 11, 2009 01:54 AM #4
Anonymous
Anonymous
Brian

Just to clarify the above comment. I would be interesting in seeing the proportion of list price - that homes sold for - by month. The data has got to be out there right?

Sep 11, 2009 01:56 AM #5
Rainmaker
267,790
Dave Roberts
Healdsburg Sotheby's International Realty - Healdsburg, CA

Brian,

the X axis is sequential sales, but only for July and part of August of this year. I do generate lots of charts for the proportion of list price. It's an important tool that helps me figure out how to bid based on neighborhood, price range, listing agent, etc. In particular, there is significant different in the results depending on what price range you are looking at. In the graph above I was looking at entry level homes in our area.

Sep 11, 2009 02:00 AM #6
Anonymous
Anonymous
Dave

Dave,

I'm looking at the SFR 250-400k price point in Petaluma. The selling strategy there (and other places obviously) has been to underlist homes to create a multiple bid situation. Is that born out by the stats you are seeing? In other words, has the final price/list price steadily ticked up over the summer?

Thanks for the site. I've found it a bit harder to find Sonoma County real estate info online (as far as blogs/discussions go).

 

Sep 11, 2009 02:05 AM #7
Rainmaker
267,790
Dave Roberts
Healdsburg Sotheby's International Realty - Healdsburg, CA

I pulled the 157 Petluma Single Family Home sales from $250K to 400K and generated a chart showing what percent difference there is between list price and selling price. I added a red trend line that shows people are paying a higher percentage of list price now than earlier in the year when the average selling price was less than the listing price. Some of that is seasonal. We are in the busiest time of the year for sales right now and the demand is substantially higher, especially for bargain priced homes.

Petaluma SFR pricing chart

I'd like to add that in previous years I have analyized agent behavior to see if rumors of intentional under-pricing were borne out. It's possible that some agents use this as a strategy, but almost all of the agents with significant sales volume had roughly equal number of sales over and under the list price. I think what we are all seeing is strong demand...make that very strong demand...at entry level housing prices. That alone can account for the bump up in selling vs. list prices without pricing games.

Sep 11, 2009 01:13 PM #8
Anonymous
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Brian

Hi Dave! That's a great chart. Thanks for sharing.

Sep 11, 2009 01:24 PM #9
Rainer
197,966
Anthony Ebright - NMLSR ID #247647 Purchase and Refinance Mortgages
FHA, VA, Conforming, Jumbo - Wells Fargo Home Mortgage - Santa Rosa, CA

Dave, I'm really impressed by your chart analysis! This is the most technical information I've seen from a realtor. You are a true pro!

Sep 26, 2009 10:48 AM #10
Rainmaker
233,053
Barb Fischer
RE/MAX Hometown Realtors - La Mesa, CA

Even without being a math/statistics major, it's clear to all of us that overbidding is a fact of life now, and it's a rare gem of a listing agent who will consider the person behind the offer.  Thanks for a great chart!

Sep 29, 2009 11:58 PM #11
Rainer
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Kathy Hoare
First Priority Financial - Santa Rosa, CA

I too am miserable for my pre-approved Sonoma County buyers, the saddest of which are the VA loan buyers.  These are qualified Sonoma County first time homebuyers wanting to take advantage of a valid and well earned benefit to get into their first, modest home.  The go to the bottom of the offer heap real quick.  The REO sellers, the same banks bailed out by our national tax dollars, will take the quick buck of investor's cash over the 100% VA financing with its fussy VA requirement of a clear pest report.  Even if the veteran offers 15% more than the cash offer he or she is out in the cold.  Shame on those selling banks and their asset managers.  If it were local banks selling the property, they would be more willing to invest in the neighborhoods by selling to owner-occupied veteran buyers.  But the big banks, the ones who made the shoddy loans that were then sold on the secondary market, are the ones with all the low-priced REO listings. 

Excuse the rant, but banks are banks are banks.  Don't get me started on the witholding of inventory to increase values...

Thanks for your writing, Dave.

 

Oct 21, 2009 06:22 PM #12
Rainmaker
267,790
Dave Roberts
Healdsburg Sotheby's International Realty - Healdsburg, CA

Kathy, That's a powerful and well written rant. I couldn't agree with you more. I wish there was a separate inventory of property that could only be sold to first time buyers, especially VA qualified families.  I just wrote another post about the Windsor market vs. Rohnert Park. There seems to be a little less frenzy in Windsor than in Rohnert Park, so you may want to test the waters there.

Oct 21, 2009 06:43 PM #13
Rainer
34,573
Roger Howell
Fairway Independent Mortgage Corporation NMLS #2289 - Boise, ID

Hi Dave,

We're seeing this to some degree in my area.  Our prices are lower than your area's.  Still, the cash investors have been out in force this year.

 

Nov 18, 2009 08:55 AM #14
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