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“We were just ready,” said Carla Cruz as she looked at houses in Stockton. “We were ready and if we wait longer we aren’t going to get what we want for the price we can manage.”
That kind of talk is music to ears of area property owners who have been subjected to a seemingly unrelenting decline in their home values during the last five years.
“The prices have risen by an enormous amount over the last year,” said Jeffrey Michael, director of the University of the Pacific Business Forecasting Center.
After watching home values plummet by nearly 80 percent in some cases, area residents have seen prices jump by at least 25 percent in each of the last two years. In Stockton, long the poster child for the foreclosure crisis, prices jumped 28 percent in 2013. In some neighborhoods prices increased by as much 40 percent.
The median price of homes in Modesto rose by 30 percent over the last year.
“Prices had just dropped too low,” said Michael. “Levels were too low in relation to their rental value and that brought in a lot of investors.”
Those investors scooped up thousands of distressed homes. The numbers of those properties sold in foreclosures or short sales have dropped significantly during the last two years.
At the height of housing collapse, 93 percent of houses listed in San Joaquin and Stanislaus counties were classified as distressed properties. Five years later, that percentage was down to 24.8 percent in Stanislaus County and 25 percent in San Joaquin County.
That, combined with an inventory that is near historic lows, has helped boost prices
“The inventories are creeping up a little bit,” said Michael. “The investors aren’t back in the market as much either. We are still in the range of a sellers’ market.”
Another factor helping the housing market is low interest rates. Rates on 30-year fixed loans are still under 5 percent for many borrowers.
“I’m going to say that inventory is not as small as it has been over the last year,” said Joe Cox of Cox Realty, which sells properties in Sacramento, San Joaquin and Stanislaus counties.
In January inventories stood at 1.4 months’ worth of houses in San Joaquin County and 1.2 months in Stanislaus County. There is currently more than two months of inventory in each of those counties. Six months is the historic norm in a healthy real estate market.
“The markets depend on what city you are in,” said Cox. “Elk Grove is really hot right now. The average number of days a house sits there is seven days.”
By contrast, houses sit an average of 21 days in San Joaquin and Stanislaus counties. Cox said that some of the current stock of houses are still set at unrealistic prices.
“Some of the inventory is false inventory,” he said. “ You have homeowners that are just above where they were underwater. You’ll see property at $345,000 and they are way above the market, but they can’t come down on the price and cover their mortgage. They are just trying to see if they can get it.”
While homeowners have enjoyed the current run-up in values, they shouldn’t expect this kind of appreciation to continue. Michael expects home values to increase by 12-14 percent this year and level off to single digit increases in the future.
“It’s slowing down and we need that,” he said. “The prices are mostly fully corrected and we are getting to levels that make sense for the fundamentals here.”
He said that he doesn’t expect a new bubble to form either.
“If we see another 25 percent jump next year, we may be back in the bubble territory,” Michael said. “I doubt that will happen. The financing is pretty conventional now. I don’t think buyers have the ability to pay substantially more than what they are at now.”
Buyers like Cruz are just happy to have a chance to get into a market and not be crowded out by cash offers from investors.
“We’ve been looking for two weeks,” she said. “Now we just have a chance to find what we are looking for.”