For veteran real-estate professionals, market downturns mean
slogging through challenges, but they also signal new
opportunities.
For veteran real-estate professionals, market downturns mean slogging through challenges, but they also signal new opportunities.
South County is as hard hit by the bursting real estate bubble as anywhere in the Bay Area, and in some ways worse, particularly in the foreclosure arena.
In its quarterly economic forecast published March 11, the Anderson School of Business at the University of California, Los Angeles, insists the economy will not slip into a full-blown recession, rather experience a sluggish 2008 with little or no growth, picking up in the second half of this year with a “normal economy” returning in 2009.
“Based on comparing the current economy to past recession episodes, we once again conclude that real estate weakness will remain a significant drag on the economy, leaving us treading water in 2008 – but not slipping under the waves into recession,” UCLA economists issued in a joint statement.
By the numbers
Tell that to homeowners and real-estate agents in South County. The worst is in Hollister, where 94 homes have been foreclosed on as of March 17, and nearly 200 more are about to move into foreclosure, according to activity tracker Foreclosure.com. RealtyTrac, another foreclosure tracking Web site, reports that in San Benito County another 252 homes are already owned by banks.
As of March 17, there were 65 homes in Gilroy in actual foreclosure, and another 219 that stand a greater than even chance of being foreclosed on unless an immediate action is taken, according to Foreclosure.com.
RealtyTrac puts the number of Gilroy families about to lose homes at nearly 300, with another 171 homes owned by various banks. Hundreds more are in bankruptcy or have tax liens levied against them.
The housing collapse in Morgan Hill has been less severe, but has still seen 25 homes foreclosed on and 92 more in preforeclosure.
Housing prices are falling as fast as foreclosures are rising. In February 2007, the median priced house in Gilroy, for example, stood at $700,000. One year later, homeowners have lost nearly a third of their equity, with the median price falling to $520,000. That is, for the few that are selling. The number of days homes are on the market is a key indicator of how vibrant a particular market is. In February 2005, you could expect to sell your Gilroy home, on average, in 39 days. Today, if you listed your house around Easter, you might see a sale by the time your kids are let out of school for summer vacation – 94 days.
So how do local Realtors weather not just a housing price cycle, but the threat of recession and a major credit meltdown to boot?
Darwinism at work
“You innovate or you die,” said Michael Sanchez, a Gilroy Realtor and loan advisor who just launched a new company called Short Sale Management Group LLC., which helps homeowners sell properties when the assessed value of the home falls below what’s owed on a mortgage. When the median price falls $180,000 in 12 months, the result is a lot of short-selling homes.
Sanchez saw the writing on the wall in late 2006 when he came to the aid of a Gilroy family that was suffering through a foreclosure (see The Dispatch, May 31, 2007), while at the same time watching median prices soar to the $700,000 mark. Since wages are not growing, that kind of price escalation was unsustainable, he said.
“For every $10,000 jump in prices, you have that many more families being left out of the market – it had to happen,” Sanchez said. “When I figured out it was the Wizard of Oz behind the curtain, I decided to turn my energy toward helping people make a softer landing.”
We’ve seen it before, most recently during the dot-com bust in 2001. The catch phrase then was “don’t worry about the stock prices, it’s a new paradigm.” It wasn’t, and neither is real estate.
Other veteran agents, such as Caldwell Banker’s Ray Pierce in Hollister or Intero Real Estate Services’ Roger Malech in Morgan Hill, are wryly enough to understand that there always has been and always will be real estate cycles.
“I knew it was coming for the past couple of years,” Malech said. “There are always storms around the corner – only so many people could afford to buy homes. But just as there’s always a storm around one corner, there’s always blue skies around the next.”
Indeed, if history teaches us anything about economic cycles, it is that falling prices attract an ever larger pool of buyers, and before you know it, sales are brisk again. But no one is being overly optimistic about how quick that will be.
“This one is going to last a while,” he said.
Pierce, who has been selling real estate in San Benito County for nearly two decades, tells the story of his advice to his daughters, both of whom are real-estate agents.
“I told them they need to square away their money and get ready for a dive,” Pierce said. “Prices went up $100,000 that year. The next year they watched it go up another $100,000, and when I reminded them of my advice, they laughed.”
They aren’t alone. With roughly 48 percent of real-estate agents in Hollister not bothering to renew their licenses this year, the thinning of the crop has begun. Some offices have packed up wholesale and left town, as are a handful of title companies.
Burning the midnight oil
In Hollister, where homes that sold for $600,000 a year ago are down to $400,000, the lights in real estate offices are staying on later and later at night. In Gilroy and Morgan Hill, real-estate agents are spending more of their time at open houses, hoping the signs and balloons will entice the curious to become buyers.
But most of all, everyone is shaking a lot of hands.
Alicia Hernandez-Holliday, a Realtor working at Intero in Gilroy, has been spending a lot of her time at open houses and connecting with people – through her church, her children’s school, at softball games – wherever she can. “All my business is coming through referrals,” she said.
She also spends much of her time answering questions for people in the community that are facing foreclosures, or are fearful of the possibility. Like Sanchez, Hernandez-Holliday said she is community member that does business in town, not a business person who happens to live here.
“It’s back to the basics,” said Dave Walsh, the newly named president of the Santa Clara County Association of Realtors. “The real-estate industry has been able to function in a disconnected market – text messages and cell phones – but now you must be face to face with people, constantly talking to people. People who are trying to survive this market are going for that face time – times 10.”
Making that connection with community is an investment that pays off during lean times, said Caldwell Banker’s Pierce.
“Ultimately real estate is about prospecting, getting out to meet people,” he said. “It may me a one, two or three-year investment in that client. We’ve been doing that for 19 years.”
Breaking the news
For homebuyers, navigating through the mess is confusing. Loan markets have gone from libertine to parched seemingly overnight. No one has a handle on pricing a home in a falling market. Should you even buy a home on the downslope? As a result, local Realtors are putting on teachers’ hats and conducting classes.
All the interviewed Realtors say they spend more time these days educating sellers on prices. Realistic prices. Sanchez’ business is built around negotiating with banks on behalf of sellers to provide acceptable pricing that the banks’ loss mitigation departments can swallow, if not relish.
“I’m helping a lot of folks understand what happened,” Sanchez said. “They don’t have a lot of people they can go to for answers.”
Sometimes the truth is brutal. Losing a home is ranked up with losing a loved one on its emotional toll. There’s a lot of consoling in Sanchez’ business. But he’s able to help families focus on a new start, understand that it is a temporary setback. That they can rebuild and achieve the American dream again.
That might sound like a sound bite from a cable news channel, except for who is describing it. Sanchez stayed out of the equity mania when is wife, Debbie, was diagnosed with cancer. All the $35,000 commissions went by the wayside so he could be at her side through her agonizing treatments.
Both Gilroy natives, the Sanchezes would see longtime friends who said they were praying for them during their darkest hours. He would come home with Debbie from a chemotherapy treatment and find bags of groceries on his doorstep.
Debbie has reached her fifth year of remission, a golden-date for cancer survivors. He recently sat in a downtown Gilroy coffee shop – not without a few tears recalling the early days of her battle – and watching Debbie push their toddler grandson Hayden along the sidewalk to join him for coffee.
“I’ll tell you how I weather this storm,” he said. “By keeping a perspective on life.”
