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Thankful for many blessings but not declining home values

By November 24, 2009

Democrat columnist

The number of county home sales this year has been gradually increasing. The 179 reported sales last month by the El Dorado County Association of Realtors was better than September or August and 10 percent ahead of October of 2008. It was the most active October since 2005. The 1,500 residential year-to-date sales exceed last yearÕs by 9 percent, and with pending sales (in escrow but not yet closed) running ahead of last year. It appears that 2009 will end as the first year in four to be better than the previous year. The same optimism cannot be said for home values.

Increasing sales activity has been little consolation for county sellers watching the continued erosion of their home equity. Although sales activity is rebounding, the countyÕs median sales price continues its slide downhill. The median selling price last month of $285,000 was $100,000 less than October of 2008 and $180,000 less than October of 2005. Since August, the countyÕs median selling price has been below $300,000. There are a number of reasons for the increased interest in county home sales at 2002 prices.

One reason for the continued median price deterioration is the large percentage of financially distressed properties selling each month. Of the 179 homes that closed escrow during October, 42 percent were bank REOs. Lenders have little incentive to get the highest price for a home repossessed through foreclosure. Taxpayer TARP dollars are subsidizing their losses. But lenders do have an incentive to rid themselves of the liability of non-performing assets and critical bank examiners looking over their out-of-balance books. Individual sellers, whose objective is to sell their property for the highest amount or at least enough to pay off the mortgage, are frustrated by the competition from lenders who have no mortgage restraints.

Wall Street lenders, who are responsible for much of our collapsing housing market, have little regard for local neighborhood values. Their predatory home pricing insures that their REOs will sell with little regard for the effect on comparable neighborhood homes. Property values will only increase when we see significant reductions in REO housing inventory, which has consistently remained at 40 to 45 percent of all county home sales.

In an effort to avoid the time-consuming foreclosure process entirely, lenders are beginning to look more favorably on approving short sales, allowing the seller to sell the property for less than the amount of the existing mortgage. The 36 short sales reported during October accounted for 20 percent of all home sales. It was the largest number of short sales closing escrow in a single month so far this year. Unfortunately, the number of short sale listings is increasing exponentially. Currently, 200 short sale listings are listed without any offers and another 200 short sale listings are listed as Òactive contingentÓ (waiting for the lender to accept the offer). Today, one in every three county listings is a short sale; one in 10 a bank REO; and 60 percent of all reported sales are both.

Declining property values is perpetuating an exodus of county homeowners that has been steadily increasing in severity since 2006. According to the El Dorado County Economic and Demographic Profile 2009-2010, ÒIn 2006 the county experienced its first negative, or out migration, in more than 10 years.Ò The number of El Dorado County residents permanently moving out of the county, continues to increase as property values decrease.

The number of vacant homes currently for sale is at an all time high. Currently, the MLS is showing more than 600 vacant homes that are for sale or in escrow. Add to that another 300 homes in some stage of foreclosure where the owners have already left and another 100 vacant single-family rentals and the number of unoccupied homes is probably close to a thousand. The downward spiral of declining prices, foreclosures and short sales becomes self-perpetuating and intertwined as more homeowners who are forced to relocate leave the county and their over-mortgaged homes behind.

When families abandon their homes and leave the county for greener pastures, local businesses suffer lost revenue. Employers are forced to react by trimming expenses, frequently by terminating employees. School enrollment declines and school districts consider closing neighborhood schools. Declining property and sales tax revenue puts many county programs at risk.

The federal tax credit for first-time home buyers is another reason for the increased interest in buying a home while lowering the median selling price. First-time buyers, who accounted for less than 20 percent of all county home sales three years ago, now account for the majority. Forty-two percent of all sales last month were priced under $300,000 while only 12 percent of all sales were priced higher than $500,000. The county has 14 months of inventory of homes priced over $450,000 and a two-year supply priced over $500,000.

The home buyerÕs federal tax credit has been extended through April and the new legislation also provides a tax credit for existing homeowners who want to buy another home. ThatÕs not likely to happen in our county where homeownerÕs equity is disappearing faster than the turkey drumsticks. The problem for move-up buyers is the dilemma of what to do with their existing home that may not sell and most rentals encumbered with a mortgage will not generate cash flow. Homeowners who would like to move up to another property are generally stuck between their declining property value and the difficulty in obtaining a loan with their existing home and mortgage.

The trend of declining property values will only turn around when more families start moving into the county instead of moving out. The Board of Supervisors will consider such a hopeful proposal this month.

Ken Calhoon is a real estate broker in El Dorado County. He can be reached at

Ken Calhoon

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