Winter Cools Local Real Estate Market

Home sales down for the holidays, according to report
Winter came early to the South County housing market.

The traditional holiday real estate cooling took hold in October, with sales of single family homes in Morgan Hill down 24.5 percent compared to September. Gilroy saw sales plummet 47 percent during the same time.

“We’re at a point of saturation, the buyers are just not there,” said Realtor Tony Lupina, of RE/MAX valley Properties in Morgan Hill. “Inventory is up, interest rates are up, we may be heading toward a normal market. We may even see a potential buyer’s market.”

Countywide, sales were off 11 percent from September and down 14 percent from October 2004. In Morgan Hill, sales were down 44 percent from a year ago, Gilroy was down 32 percent.

Inventory – the number of houses on the market – has more than doubled in that time, and prices have continued to climb.

The median home price has hit $725,000 in Gilroy and $827,000 in Morgan Hill. Patty Filice, a broker associate with Intero Real Estate, speculated that prices have put many homes out of reach. There are now more than 300 single family homes for sale in Morgan Hill and Gilroy.

“A lot of people have been priced out of the market,” Filice said. “There were a tremendous number of people motivated to get in, but demand has faded because a lot of people have gotten in. The higher prices go, the fewer people can afford them.”

Still, all the statistics point to a seller’s market. If no new houses come on the market, the existing supply will evaporate in less than three months’ time. Lupina said a balanced market, where neither buyer nor seller has an advantage, requires more than five months of supply.

But, he said, the supply will continue to grow through the winter, and when spring comes, the seller’s advantage may be gone, replaced with what Filice called a “healthy market.”

“I think a healthy market is when there’s balance,” Filice said. “There are houses to look at and time to make a decision. It’s been so long since we’ve seen one, it may be hard to recognize.”

Over the last two years, the South County real estate market has been breathless, with the median home price in Gilroy spiking 46 percent since January 2004 and Morgan Hill prices jumping 41 percent in that time.

Lupina and Filice predicted modest growth over the next year, though Lupina said owners of homes that cost more than $1.5 million “may have to get more real,” and accept that their homes may not appreciate.

Filice said tough times could be ahead for buyers who got in the market with little or no down payment and variable rate, low-interest loans. As houses have soared in price, brokers say, those programs, often including interest-only payments, have increased in popularity among first-time home buyers.

In the coming months, many of those loans will adjust up 2 or 3 percent, adding large sums to mortgage payments and driving owners with no equity further into debt.

“Buyers that started with a low adjustable start rate will feel a pinch,” Filice said. “The first year is kind of a bonanza. After that, it can be tough.”

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