Talk about Money: Housing still a crunch in local market

The first-time home buyers tax credit has helped boost prices in parts of San Lorenzo Valley, but it hasn’t lifted the gloom that hangs over Scotts Valley’s housing market.
“In the media, all I hear is, ‘Sales are up! Sales are up! It’s a recovery!’” says Melanie Useldinger, a real estate agent in Scotts Valley. “But we’re not seeing it here.”
The contrast between San Lorenzo Valley, with its mostly moderately priced homes, and Scotts Valley, with its mostly high-priced homes, is startling.
According to data Useldinger provided:
• In the south Felton and Lompico area, 26 homes were sold in the third quarter of this year (July through September), compared with only 12 in the third quarter of 2008. The median sale price was $353,750, up from $327,450 a year earlier. That’s a price increase of 8 percent.
• In Scotts Valley, 19 homes were sold in the third quarter of this year, down from 25 in the third quarter of 2008. The median sale price was $645,000, down from $815,000 a year earlier. That’s a price decrease of 20.8 percent.
Part of the reason higher-priced homes are dropping while lower-priced homes are rising is financing, says Jack Western, also a real estate agent in Scotts Valley.
“In high-end homes, in the $800,000 to $1.2 million range, loan limits come into play,” he said.
Home buyers get the lowest interest rates on loans of $417,000 or less. Buyers who want to borrow more than $417,000 but less than $729,750 pay higher interest rates, and loans of more than $729,750 command higher interest rates still.
Home buyers can get Federal Housing Administration 30-year, fixed-rate loans with interest rates near 5¼ percent, Western said, and they only have to make a down payment of 3½ percent. With the $8,000 federal tax credit for first-time home buyers, buyers of moderately priced homes are, “in effect, buying for no money down,” he said. That’s helped spur demand and drive up prices for homes priced at less than $417,000. And those were the homes with prices that fell the most when real estate prices collapsed.
In 2005 and 2006, you could buy a home for no money down, and lenders didn’t seem to care if you could afford the monthly payments. Everyone assumed home prices would always go up and didn’t worry about borrowers’ qualifications. Buyers watched their homes go up in value and their home equity soar. They were able to use that equity to trade up to more expensive homes.
But when prices started to drop, many borrowers couldn’t afford their payments, and home prices crashed. Houses and condos that sold for $400,000 to $600,000 then have dropped in price by half, Western says. Those homeowners can’t trade up anymore, because their home equity has vanished.
That, coupled with high interest rates for higher loan amounts, has hit expensive homes with a double whammy, and that’s why home prices in Scotts Valley are dropping.
Does Western see any hope of a recovery?
“We can’t have a recovery unless we start putting people back to work,” he said. “The true unemployment rate in California is about 17 to 20 percent. People who used to have pretty good jobs are now struggling to hold on and avoid foreclosure.”
• Mark Rosenberg is an investment consultant for Financial West Group in Scotts Valley, a member of FINRA and SIPC. He can be reached at 831-439-9910 or mr********@fw*.com.