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Bakersfield Market Update - 1st Qtr 2008

By
Real Estate Appraiser with Fariss Appraisal Services

So, where is the Bakersfield real estate market headed? That's a difficult question to answer because of the many variables that affect this market. Food and gas prices are increasing. We're headed into an election. Foreclosures are skyrocketing. We've probably seen the last of fed rate cuts.

All other factors aside, the biggest affects on the local market right now is foreclosures and short sales which make up over 50% of the listings and sales right now. Lenders are getting more aggressive with pricing which is forcing everyone to lower prices to compete.

Sale volume has been strong: there were 850 sales in Q1 2008 which is about the same as Q1 2007. Marketing times also remained similar: typically 2-4 months for competitively priced properties. 

Prices are a differenct story. The average sale price in Q1 2007 was $319,371 and the median was $280,000, and in Q1 2008 the average was $247,180 with a median of $228,950. The total dollar loss in Q1 2008 versus Q1 2007 is over $70 million. The average per square foot price in Bakersfield has dropped from $196 to $135, over a 31% decline in 1 year.

The supply of homes for sale is down from the peak which was near 4,500 last year. Since October, the supply has declined from 14 months to just over 11 months. As the supply of available homes decreases, the decline in prices should slow, provided sale volume remains at least the same. If the flood of foreclosures and short sales decreases then we should start seeing prices stabilize and supply decrease, but if we continue at the current rate of defaults, values will continue to decline.

Regardless of what happens with foreclosures, one fact remains: prices have declined enough that they are affordable again. That means buyers are entering the market again which will eventually put an end to the housing crisis.

Comments (5)

Adam Waldman
Westcott Group Real Estate Company - Hauppauge, NY
Realtor - Long Island

JOHN - Good to see you around.  It's been a while.  That's a pretty steep decline in home prices.  Hopefully the bottom is near out there, and the buyers will jump back into the pool.

May 31, 2008 09:48 AM
Anonymous
Domer

Considering the closing gap on the default to repossession ratio (ie, the percentage of homes entering default that reach foreclosure status), and the surging rate of default notices, do you account for the back-room inventory?  I think when discussing future trends you would have to appropriately consider the likely volume of homes that are currently in inventory, even if they aren't ready for purchase yet.  It's kind of like having a bunch of product in the back room, it still counts even though it isn't on the shelf.

In Q1, 3611 notices of default were filed.  Add in the standing inventory in MLS, the bank-owned/default properties already standing but not included in either and the "ready to bust" homeowners seeking or considering seeking short-sales and you've got a very different data set on which to build your analysis.  The last quarter alone, despite sales of 850 homes, resulted in nearly a net year's increase to the inventory.  When looking at it from this scenario, it is hard to pull out any sort of drop in actual inventory.  With April setting yet another record, it will be interesting to see what May brought us.

I'm not a doom and gloomer, but I have been watching the market closely for the last couple years.  Despite the fact that many people got burned in this housing mess, affordable housing is a good thing for the economy.  Keeping prices artificially high (stagflation) is probably one of the worst things that could happen.  In just the last five months, it has been interesting to watch as the trend setting properties set the stage, people scramble to "get the deal" and three weeks later, half the inventory is listed at that price just as the next surge in low hanging fruit hits the market.

Jun 02, 2008 04:27 PM
#2
John Fariss
Fariss Appraisal Services - Bakersfield, CA
Appraiser - Bakersfield, CA

Adam - Thanks for stopping by. Buyers are definitely getting back into the market. All my clients have said that business is picking up, and 95% of the appraisals I'm doing are for purchases. Prices are getting back down to where homes are affordable. Where we are headed in the future all depends on the foreclosures and short sales. If we can stop the bleeding, we might just see some stabilizing prices.

Domer - Thanks for your comments. I did not include "back-room" inventory in this analysis because the peak I used also did not include that. Just looking at currently listed properties, inventory declined from the peak of 4,500 to about 3,300, if I remember correctly. Of course foreclosures and short sales now make up a larger percentage of the current inventory than they have in the past. This is really just a market recap of the first quarter and not a predictor of future trends. As I stated, if the volume of foreclosures and short sales slows then we should start to see some stabilizing, but if they continue at the current rate, values will continue to decline. I'm not predicting either way what will happen though.

Jun 02, 2008 05:40 PM
Ron Holborn
Short Sales, Foreclosures, Rentals, Income Real Estate - Anaheim, CA
Commercial & SFR, Anaheim CA, Real Estate & Short

Hi John, I appericate your data on single family homes do you think investing in 2 to 4 units makes sense in the Bakersfield area ?

Jun 16, 2008 03:04 PM
John Fariss
Fariss Appraisal Services - Bakersfield, CA
Appraiser - Bakersfield, CA

Ron - There are some good deals out there, and rents appear to be increasing, presumably because so many are losing their homes and returning to the rental market. Investing in any type of property really only makes sense if the numbers work. If the price is good, you have a large down payment, tenants are readily available, and the rents are paying your mortgage and funding your reserve, then it probably makes sense. Of course some areas are much better than others, but there are some great prices all over town right now.

Jul 10, 2008 09:58 AM