Another record low for Bay Area home sales Sales slump: Foreclosures push median prices down as transactions hit new low

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A flood of foreclosure sales dampened the housing market in March, the traditional start of the spring selling season, and Bay Area home sales clocked another record low, according to a real estate report released Thursday.

One-quarter of all homes sold in the nine-county area last month were foreclosures. Banks typically sell such homes at a discount, which further depresses prices, particularly in the immediate neighborhoods.

"It's the weakest kickoff to the spring home-buying season that we've seen in 20 years," said Andrew LePage, an analyst with DataQuick Information Systems, a real estate information service in La Jolla (San Diego County).

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A total of 3,226 existing homes changed hands in the region in March, down 40.6 percent from 5,429 in the same month last year, DataQuick said. The median price for resale homes tumbled 20.4 percent to $549,000 from $690,000 a year ago.

DataQuick said this was the slowest March in the Bay Area since it began tracking statistics in 1988, and the seventh consecutive month of record lows.

The more foreclosures that sold in a county, the faster its prices plummeted. For instance, 44.7 percent of the March sales in Contra Costa County were foreclosures and the median price there fell by about a third to $409,000 from $614,500 a year ago, according to DataQuick.

"Typically, foreclosure resales tend to sell for about 15 percent less than everything else," LePage said. "Houses in areas dominated by foreclosure resales seemed to suffer a penalty of 5 to 10 percent on price."

Bargains for buyers

Richard Lee, a Realtor with Windermere Select Properties in Dublin, told the story of one listing that exemplifies how home values are spiraling down.

On Aug. 15, he placed a San Leandro two-bedroom, one-bathroom home on the market. Initially he listed it at $499,950, which he said was exactly in line with what comparable homes in the neighborhood had sold for in midsummer. But the house did not draw any offers. As the weeks and months have gone by, he has continued to drop the price. The home received some offers around $300,000 but because it was a short sale (selling for less than is owed on the mortgage), the bank had the final say and it did not accept those offers. As of Tuesday, the price was down to $229,950, more than a 50 percent reduction.

But there is a silver lining to the tumbling values: More people can afford a home in the Bay Area.

Gabrielle and Brad Bussey, who work in band booking and landscape maintenance, respectively, never thought they could afford the area's steep prices. But last month the couple bought a bank-owned foreclosed home in Oakland's Melrose Heights neighborhood for 39 percent less than its previous sale price.

The former owners paid $557,000 for the three-bedroom in June 2005, according to Dave Lawrence, a real estate broker in Fremont who represented the Busseys. After foreclosure, the bank put it on the market in September for $456,000 and then dropped the price several times, finally hitting $339,000 - which is what the couple paid.

"We got married in 2005, and it was time to buy a house," Gabrielle Bussey said. "At that point the median price was around $500,000 and definitely above what we could afford. A few months later it went to $600,000 and then (soon) I read that it was $700,000. I thought, this is grotesque, I resent it, I wouldn't pay that much money even if I could afford it."

As has consistently been the case, several counties - notably those close to job centers and in affluent areas - were in better shape than hard-hit places such as Contra Costa and Solano counties. In San Francisco, the median resale price inched up 0.4 percent to $826,000 - the only county where the median grew. Not coincidentally, San Francisco also had the lowest percentage of foreclosed homes sold, with only 2.4 percent of homes sold in March having gone through foreclosure.

Despite the increase of foreclosure sales, plenty more are waiting in the wings. LePage said three-quarters of the homes that went through a foreclosure in Contra Costa and Solano counties in 2007 have not yet been sold. "That keeps your inventory pretty heavy, and those are very motivated sellers," he said.

Most experts predict that even more homes will go through foreclosure in 2008.

Priced to move

Dori Anderson, a Realtor with Cypress Lakes Realty in the Contra Costa County community of Bethel Island, specializes in foreclosures. She has 76 such properties now on the market and another 190 that will be listed soon. Anderson said lenders have begun discounting even more heavily in recent months.

"Banks are getting more realistic and ... pricing to move," she said.

Getting a mortgage remains a big stumbling block to the market recovering.

Although Congress raised the limits for jumbo loans this year, those changes are not reflected in the March results. Mortgages for more than the $417,000 jumbo limit accounted for only 29.8 percent of sales in March, compared with 62.2 percent a year ago. If jumbos had been more widely available, the median home price would have been closer to $597,000, DataQuick said.

Mortgage brokers and borrowers have reported that the higher limits - up to $729,750 in high-cost regions such as the Bay Area - have not resulted in lower interest rates. Lenders have significantly tightened their underwriting criteria, so prospective borrowers must have stellar incomes, credit scores and down payments.

"The spigot has to open up significantly on the loan side" for the market to recover, LePage said.

Mona Koussa, a Realtor with Windermere Welcome Home in San Ramon, agreed that foreclosure sales hurt values.

"It's tremendous downward pressure" on price, she said. "It's very frustrating if a seller is trying to do a regular sale that's not in this subprime mess to have to compete with a property that did get caught in the subprime mess (and foreclosed upon). I tell folks (in high-foreclosure areas), if you don't have to sell, take it off the market, rent it out and wait a couple of years until the market swings back up again."