Hot real estate market gets chilly in Bakersfield
Hot real estate market gets chilly in Bakersfield
Housing inventory quintuples as boomtown of 2005 returns to Earth
By
Russ Britt, MarketWatch
Last Update: 12:01 AM ET Sep 5, 2006
BAKERSFIELD, Calif. (MarketWatch) -- Just 12 months ago, this sun-baked Southern California city was one of the hottest real-estate markets in the country. With inventories at razor-thin levels, properties would sell in a matter of days, sometimes even hours, as multiple bids poured in on each home. "For Sale" signs were almost nowhere to be found.
Those days now are dust in Bakersfield's gusty winds. The housing stock nearly has quintupled and prices are virtually flat when compared to last year's levels. Home sale time-frames now are measured in months, not days.
"Yeah, we miss those times," Darrell Muhammed, a local agent, said of last year's market.
While average prices have yet to tumble, concern mounts that an ever-increasing housing inventory, coupled with coming hikes for variable rate mortgage holders, could send the market south in a hurry.
Trouble signs are everywhere. At Lennar Corp.'s (
LEN :
Lennar Corporation) Artisan/Terra Vista tract on the city's west side, about 20 homes only a year old are back on the market.
They compete with dozens of other new houses Lennar is building in later phases of the same development, which agents say makes the older homes tougher to sell. Six of the resales are within view of each other on the same street.
"It's very tough market," said Joginder Gill, the agent trying to sell one of the six houses. "If you look at past history, it's going to go way, way down."
Sudden rise
Tucked into the southeast corner of California's San Joaquin Valley about 90 minutes north of Los Angeles, Bakersfield suddenly became a hot real estate market two to three years ago when prices in the L.A. region skyrocketed out of reach for entry-level buyers.
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Those variable mortgages with low initial interest rates catapulted most homes in the L.A. area past the $500,000 mark. Meanwhile, Bakersfield remained somewhat more affordable with a good selection of homes still under $300,000 for those willing to brave the long-distance commute, or others lucky enough to find work nearby.
The region also captured a lot of interest from investors looking to make a quick buck. As many as one in four homes bought during this time were from out-of-town investors interested mostly in flipping properties, experts say.
Those variable mortgages with low initial interest rates catapulted most homes in the L.A. area past the $500,000 mark. Meanwhile, Bakersfield remained somewhat more affordable with a good selection of homes still under $300,000 for those willing to brave the long-distance commute, or others lucky enough to find work nearby.
The region also captured a lot of interest from investors looking to make a quick buck. As many as one in four homes bought during this time were from out-of-town investors interested mostly in flipping properties, experts say.
The city led the charge of eastern California towns like Fresno, Modesto, Visalia and Merced where home price hikes beat out more high-profile areas to the west such as Los Angeles, San Francisco and San Diego in percentage gains.
According to the Office of Federal Housing Enterprise Oversight, Bakersfield edged out Las Vegas in the first quarter of 2005 for highest average property growth with a 33.7% increase. Las Vegas was up 33.3%.
More recently, OFHEO ranked Bakersfield 19th and Las Vegas 83rd during its survey for the first quarter of 2006. For the first quarter of 2006, OFHEO said Bakersfield's average home price rose nearly 27% when compared with the year before.
Flat pricing?
Local experts say those figures are outdated.
Gary Crabtree, a local appraiser who compiles a monthly report on Bakersfield market trends, says median home sale prices in the region rose 2% in July compared with the year before.
The time that
unsold inventory remains on the market has jumped 400%, from 1.7 months to 8.5 months. And the time homes have spent on the market has more than tripled, from 12 days to 38 days.
Even that last figure can be deceiving, Crabtree says.
He thinks agents are playing what he calls the "re-listing game," or taking a property off the market and then putting it back on again so that the "days on market" clock starts anew.
One property he was eyeing spent more than eight months on the market. But through several relistings, it appeared to buyers as though it never spent more than a couple of months up for sale.
Crabtree, though, says the market should be put in perspective. Last year was extraordinary, with property values skyrocketing in the face of high demand and extremely low supply.
"We're back to being normal again," he said. "We're tracking right along with the rest of the state."
Leslie Appleton-Young, chief economist for the California Association of Realtors, said sales are down 30% statewide from what they were a year ago. She said the market is correcting but it's not recession-fueled. The interest rate environment remains favorable.
Simply put, the market that saw 40% jumps in housing prices the past two years has gotten a wake-up call.
"It's been completely unsustainable," she said.
To many, the Bakersfield situation was inevitable.
"Why shouldn't there be retrenchment in housing?" said Stuart Gabriel, director of the University of Southern California's Lusk Center for Real Estate. "It's appropriate that housing take a breather."
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