Too few homes, too many buyers stunting growth in Monterey County housing market


Scant inventories are driving up home prices in Monterey County’s recovering housing market, as investors snatch up what’s available and leave the leftovers to traditional home buyers.

Still, with interest rates at record lows and prices less than a half what they were five years ago, it’s a good time to buy – if you can find a suitable property and get a home loan.

The median price of single-family homes in Monterey County came in at $280,750 in July, up 12 percent from $250,000 a year ago, but down about 60 percent from $695,000 back in 2007, near the peak of the market, according to the latest numbers from MLSListings, Inc., the multiple listing service for the market.

The smaller condo market saw prices rise a whopping 58 percent from $189,500 to $299,500 during the July-to-July period.

Monterey County housing market improvement got a nod from Fitch Ratings, which recently rated the county’s financials AA to AA-, with AAA the highest possible rating.

“Monterey’s wealthy coastal communities have provided some stability; this feature differentiates the county from the state’s hardest hit housing markets … Home prices remain below 60 percent of peak levels, but have shown increasing signs of stability in the first half of 2012,” Fitch reported.

Monterey Zillow Home Value Index

Chart note: Monterey County is green, Monterey city is gray.

Shrinking inventories

Monterey County’s home price increases are largely due to big demand in a market of small inventories.

Inventories for all homes dropped about 25 percent, year over year, ending in July. Meanwhile single-family home sales fell 9 percent and condo sales dropped 6 percent, according to MLS Listings.

There’s not much to buy, in part, because equity-drained homeowners are staying out of the market.

“The majority of homeowners feel that prices are so low, they don’t want to sell and if they do sell, where are they going to go?” asked Susan Lubin Brownlie, a real estate agent with Coldwell Banker – Gay Dales, in Salinas.

Also, over the years, a large bulk of distressed properties have moved through the pipeline.

“Before 2011, the majority of homes for sale were bank-owned properties (REOs) and those have diminished in Monterey County to about 29 percent, 24 percent in some areas in North and East Salinas. REOs were 90 percent of the market in 2010 and 2011,” said Brownlie.

That leaves the rest of the selling market to a small numbers of motivated sellers making job transfers, moving to a better school district, or trading up or down, according to Linda Dorris, 2011 president of the Monterey County Association of Realtors.

Reluctant sellers, ‘lots of investors’

“Among the few people who are selling are also those who are underwater and can’t keep their homes because the payment is too high. Short sales and few REOs,” said Dorris, also an agent with Coldwell Banker Gay Dales in Salinas.

There were only 350 new single-family home listings in July, down from 386 during the same month last year. New condo listings totaled 44, the same as last July, according to MLSListings.

What single-family homes are available are selling fast. Single-family homes were on the market for 79 days in July 2012, compared to 100 days in July 2011. Condos languished longer, 122 days in July this year compared to only 91 days last year, according to MLSListings.

Many of Monterey County’s home buyers are all-cash buyers, investors looking to buy, fix up and flip properties for a profit and others who are buying to rent – all to cash in on low prices and interest rates hovering around 3.5 percent.

“There are lots of investors. They want instant success so they are looking for things to fix up and flip,” said Dorris.

“A lot of people are becoming landlords. You can get a 10 percent return on a $150,000 house, so there’s a lot of new landlords coming into the market from out of state, way out of the area,” Dorris added.

Monterey Zillow Rent Index

Chart note: Monterey County is green, Monterey city is gray.

Rent nothing to sing and dance about

The Zillow Rent Index reported the median rent for the county-wide area over the past year, July to July, slipped by 2.6 percent, but at $1,857 a month, that’s a lot of rent.

Over the same period, the median rent was up 7.3 percent to $2,244 in the city of Monterey, and down 2.9 percent, but still high in Salinas at a median $1,732 per month, according Zillow.

The few traditional buyers, often fleeing high rents that kept them from saving much for a down payment, have a tough time wrenching loans from tight-fisted lenders.

And on the street, they have to face off against, more seasoned and better bankrolled buyers and investors.

Brownlie says most offers for properties under $350,000 come from all-cash buyers. Three out of five Salinas homes in the $325,000-and-under price category are sold to become flipped properties, she said.

There’s hope.

“It’s a great time to buy. Rates are really low and should continue to stay that way. Prices are for the most part, even getting into upper price ranges, very, very attractive,” Brownlie said.

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