Market conditions as of the effective date of the work under review:
The mortgage lending market remained volatile and unsteady through much of the nation and many areas of Mendocino County including the subject's market area of Fort Bragg Central (within the city limits of Fort Bragg). Many lending programs and products that were readily available less than a year ago are no longer available and there has been a significant decline of investors in the secondary market. The result is higher borrower qualification, less liquidity and other conditions resulting in fewer loans being made. Fewer loans available reduces the amount of purchase-ready buyers and increases the amount of competition among the sellers for those fewer buyers. When sellers are competing for buyers, they do so by lowering prices. Media saturation campaigns detailing the current problems in the mortgage lending industry and it's effect on real estate markets, in particular the specter of upcoming foreclosures resulting from resetting adjustable rate mortgages in combination with declining residential property values appeared to be exacerbating the problem. This dynamic was apparent in trend analysis and its influence, based on my research and conversations with market participants, was present in this market and likely to increase. Median sales price in Mendocino County had fallen from $400,000 last year to $348,000 as of March 2008. Areas most affected are the more metropolitan areas in the incorporated cities of Ukiah, Willits and, in the Mendocino Coastal area, the City of Fort Bragg. More frequent notices of listing price reductions are being sent to CMAR MLS members via email.
The incorporated City of Fort Bragg market appears to be severely impacted by ongoing adverse market conditions resulting from the problems in the subprime market described above. Driving the market were out of area investors and speculators which by July or August of 2007 had started pulling out. Sales activity has almost stopped completely. For the period March 2006 to March 2007 there were about 69 closed sales in central Fort Bragg with a median price of $409,000. For the period March 2007 to March 2008 there were only 24 sales with a median price of $365,000. From September 2007 to March 2008 there were only 8 closed sales with a median price of $319,000. Average days on market (exposure time) has increased from about 175 days in 2006/2007 to 297 days as of the effective date of the appraisal report under review. As of the effective date of the work under review there were about 54 active listings and about 3 pending sales in the Fort Bragg Central area with many of them being offered for more than 300 days and some for over two years. This indicates that supply and demand are not in balance and that this is an unstable market. Median price decline of about 23% year over year, 13% in the six months prior to the effective date of the work under review.
The appraisal report under review marked the One-unit Housing Trends check boxes as Stable, In Blance and 3-6 months marketing time (this box should actually be "exposure time" which is not the same as marketing time). The report went on to state in the Market Conditions comment section: "Property values have shown a marked increase over the past several years due to a strong demand and severe shortage of properties offered for sale. More recently the market appears to be stabilizing with supply and demand in balance." This was clearly not an accurate analysis as of the effective date of the report under review and resulted in a misleading appraisal report. With almost 54 active listings at the time and less than 2 sales per month it might take several years to absorb the oversupply if no change in market conditions were to occur. Refer to the statistics noted above and it is clear that the market was not stable as reported in the work under review.
