Sonoma County's condo craze
Condominium values dropped further than single-family homes, but those fortunate to buy in recent months have found bargains
Lisa Avila purchased her northwest Santa Rosa condominium in December, 2009, for $140,000.
Christopher Chung / The Press DemocratPublished: Sunday, April 25, 2010 at 4:03 a.m.
Last Modified: Sunday, April 25, 2010 at 4:03 a.m.
If today's housing market feels a little like the Wild West, then the condominium segment could resemble Deadwood.
In the boom and bust of recent years, the condominium market appears to have given buyers and sellers the most hair-raising ride.
Many buyers who for years were priced out of the market at last have come away victorious in their search for an affordable property. But others have seen their fortunes fail as condos lost more than half their value in the last four years.
"They were just hammered," said Russ Anger, vice president of lending for Community First Credit Union in Santa Rosa. Today, buyers can find condos selling in Sonoma County for 60 percent less than before housing prices tumbled, he said.
During the past 12 months the pace of condo sales has significantly increased. In the first three months of 2010, buyers purchased 180 units in the county, the largest number in five years.
As with the rest of the starter home market, the competition can be strong for attractive, well-priced condos, according to real estate agents. Buyers, especially those without large down payments, may lose out to investors and others with more cash.
Moreover, new federal rules are further limiting which condo projects qualify for FHA-insured loans, a growing percentage of loans today. As a result, owners in the unapproved condo projects may attract fewer buyers.
Lisa Avila, who works in sales and nutrition education for Health First Pharmacy in Windsor, purchased a northwest Santa Rosa condo in December for $140,000. The home, a foreclosure property, had been purchased by its previous owner in 2006 for $383,000.
"It was definitely stressful," Avila said of the search for a home. She spent about seven months and put in three offers on condos before her fourth was successful.
She's satisfied with her new three-bedroom, two-bath unit. The key, she said, was knowing exactly what she could afford and not allowing herself to fall in love with a place that "doesn't fit your pocketbook."
By the end of March, the county's condominium prices had climbed back 27 percent from February 2009, the bottom of the current housing cycle for single-family home prices. The median-priced condo last month sold for $177,500, according to data provided by Rick Laws, manager of Coldwell Banker in Santa Rosa.
During that same period, the median price for single-family homes rose 14 percent to $349,000 in March.
But condo prices took a much steeper fall. They plunged 59 percent from 2005, when the annual median price was $370,000, to $159,250 last year. Single-family homes fell 43 percent over the same period.
A single-family house remains the aspiration of most buyers, and that appeal in turn affects the condo market, real estate agents say. Multi-family units typically are slower to appreciate in price, and buyers tend to shy away from them more when the larger housing market slows down.
"They're going to always try to buy a single-family home first," said Mark Brande-
muehl, a vice president at Movoto.com, a housing search and tracking site headquartered in Redwood City. "They're going to stop buying condos first, because they didn't want a condo quite as much."
The number of condominiums here remains a fraction of the stock of single-family houses. The city of Santa Rosa estimates it has 6,000 condos and townhouses compared to 59,000 single-family homes.
For the county, 162 condos and townhouses were listed for sale at the end of March, the smallest number in five years. The number of homes placed in a new sales agreement between buyers and sellers last month exceeded the number of new condo listings.
"The inventory coming on (the market) still doesn't seem to be keeping up with buyer interest," said Dave Harrell, an agent who works mostly with investors for Prudential California Realty in Santa Rosa.
Another distinction of the condo market is its higher rate of distressed properties. Sixty-five percent of the county's available condo units were either foreclosures or short sales, the latter requiring bank approval to be sold for less than the amount owed on the loan. In January 2009, near the bottom of the market, the portion of "bank influenced" condo listings was 88 percent all available units.
In comparison, about half the county's single-family homes listed for sale in March were foreclosures or short sales.
First-time condo buyers have to factor in that they are joining a group of fellow owners who jointly control the property. As a result, buyers must consider whether they can afford the developments' monthly homeowners fees as well as the monthly mortgage payments.
"That will make or break the deal," said Shannon Luft, a broker associate with Coldwell Banker in Santa Rosa.
Shawn Hermosillo, a Keller Williams agent who helped Avila buy her condo, said the closer proximity to neighbors also must be considered. Buyers need to see what it's like to live in the development.
He advises clients, "Go look at 6 o'clock in the morning, 12 o'clock noon and 10 o'clock at night."
A large group of first-time buyers now face new rules that may prohibit FHA-insured loans for the unit they seek to buy.
That matters because of the growing reliance on such lending. Last year in California, 28 percent of all condo loans and 36 percent of all townhouse loans were backed by the FHA, according to an analysis performed for The Press Democrat by First American CoreLogic. In 2007, the portion of such FHA loans was less than 1 percent.
Eric Taggesell, loan officer Princeton Capital in Santa Rosa, said an even greater portion of the condo buyers he works with are seeking FHA-backed loans. At the least, he said, the added regulations that took effect this winter will "add significant times to get deals done."
Among other things, the new rules prohibit FHA loans in developments where more than 15 percent of the units are behind on their monthly homeowners' fees. As well, at least half the units must be occupied by owners.
Some mortgage bankers say they object to federal guidelines that ask them to certify the development as suitable for any future FHA loan there, not just the particular loan they are making. That leaves room for potential lawsuits from future loans the mortgage banks aren't even a party to.
"We're going to get one loan out of it and then carry all the liability," said Otto Kobler, manager of Maximum Mortgage in Santa Rosa, a branch of American Pacific Mortgage.
As a result, Kobler and other local brokers are directing buyers instead to look for condos in projects with current FHA approvals. Brokers also point them to multi-family planned unit developments (PUDs), which may look like condos but are free of the FHA condo rules.
Corey and Maya Offenbach, also clients of agent Hermosillo, were able to sell a condo to an FHA buyer in March for $190,000, about $18,000 more than the couple paid for the unit in the fall of 2008. But they feared their condo development, on North Dutton Avenue in Santa Rosa, might not receive FHA approval. All three of the potential buyers who had placed offers wanted to use the government insurance program.
"It was definitely a little nerve-racking," Offenbach said. FHA approval didn't come until five days before the home closed escrow and changed hands.
You can reach Staff Writer Robert Digitale at 521-5285 or robert.digitale@pressdemocrat.com.
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