Saturday updateOn April 20 , the Register met with five local real estate professionals to discuss the current market. Topics ranged from bank-owned properties to Upvalley sales and comparisons with other parts of the region.

Participants included Lynda Jensen, executive vice-president and general manager for Heritage Sotheby’s International Realty in Napa; Judy Naimo, broker-owner of Green Valley Associates; Robin Rose, general manager of Coldwell Banker Brokers of the Valley; Gerrett Snedaker, CEO-broker, Frank Howard Allen Realtors, Wine Country Group; and Katie Somple, broker-owner of Lifestyle Properties in St. Helena. Napa Valley Register Editor Bill Kisliuk moderated the discussion. An edited transcript follows. For a full audiocast of the 40-minute conversation, click on this story at www.napavalleyregister.com.

Bill Kisliuk: What’s happening in Napa Valley real estate right now?

Gerrett Snedaker: I think it is the same way in most of wine country. What I’ve been seeing in Sonoma and Napa counties is two different markets. There is a distressed sale market and a conventional market.

In the city of Napa itself, of the 509 homes that are available as of this morning, 189 would be distressed properties. That’s 37 percent that is either bank-owned properties, short sales — which is when the loan on the property is more than the sales price or selling price — homes in foreclosure or with notices of default.

With listings that are more than $500,000, that figure drops to 11 percent from 37 percent. Below $500,000, 67 percent of those homes are distressed.

That’s why we’re seeing pressure on the median price, prices we haven’t seen since 2002. It’s because this distressed inventory is being absorbed.

In American Canyon,      80 percent of the listings fall into that distressed category. But there’s health in American Canyon, in that sales are going at a pace that is 175 percent ahead of this time last year. There were    37 new sales in the month of March compared to 11 a year ago. So that’s a healthy sign. Inventory, if it stays at that same sales pace, is down to a two-month supply. A year ago we had a 12-month supply.

BK: The level of activity has changed pretty dramatically in the last three or six months. What’s going on?

Robin Rose: In a typical market, approximately          30 percent of the buyers are first-time homebuyers. Right now we’re seeing more than        50 percent, and that’s growing.

I think that’s due to several factors: We have historically low interest rates. We have plenty of financing for qualified buyers. We have the stimulus package, which has provided an $8,000 tax credit. The National Association of Realtors is predicting that’ll result in 300,000 more sales this year, and I think we’re seeing that.

Investors are jumping back into the market right now.

Judy Naimo: There are young people who thought they would never be able to make a purchase, to afford a home. There are a tremendous amount of first-time buyers. Absolutely tremendous.

BK: What’s taking place Upvalley?

Katie Somple: Very currently, we’re seeing a significant increase in multi-million dollar sales. Year to date they’ve been pretty slow, and just in the last week — actually just as of this morning — we have several new, high-end properties that went into escrow.

What we’ve been seeing until now is sort of a pent-up demand. I’ve heard people say there are no buyers, but that’s really not the case. There are buyers out there, but they’re waiting for the prices of real estate to reflect what their opinion is of current value.

I think we’re starting to see more of that, so the drain is getting unclogged.

BK: Lynda, you’ve mentioned that we need to look at specific neighborhoods to better understand the market.

Lynda Jensen: One of the things that is very enticing about Napa is that we have these micro-markets in different sectors of the city.

We have a significant number of homebuyers entering the marketplace where property prices have been weak and where we’ve had foreclosures and short-sales. However, we also have other markets. In these other markets, such as Browns Valley, north Napa, Alta Heights, you can’t just nail an exact trend. I believe the properties that are unique, stylish, have land, they also have a different appeal.

BK: Do you see different levels of activity at different price points?

JN: I believe at the lower end, what’s driving the market has been investors, but now with the tax incentives it is first-time buyers.

I’ve got a little analysis here that talks about the difference between renting versus owning. Say you’ve got somebody who earns say $75,000 annually, paying $1,500 a month rent, and they’re going to buy something for $300,000. We’ll use 5 percent as the rate.

They’re roughly going to be paying on Federal Housing Authority loan about $2,070 a month. That’s everything, give or take — taxes, insurance, principal and interest. The feds, as Robin has said, are giving an $8,000 tax credit.

They’d be paying about $12,500 in federal taxes and about $4,100 in state taxes when they’re renting. When they’re owning, they’re going to be paying about $8,100 in federal and $2,700 in state taxes.

What that comes down to is about a $5,800 a year tax benefit, which is $488 a month.

So, if your payment is, say, $2,070, and you’re going to wind up getting approximately a $488 a month tax write-off, not counting the $8,000 bonus incentive there, there’s only about $50 or $75 difference between renting and owning.

That’s a big, big piece in driving the market at $350,000 and under.

BK: Do you anticipate more foreclosures this year?

GS: We do expect a second wave, if you will, of foreclosures through the middle of the year. There was a moratorium on federal foreclosures in November through January, but we’ve seen a spike up in notice of defaults since January. The banks are trying to move on these properties.

That being said, there is a lot of pressure to try to modify loans, to work out loan deficiencies, to work out short sales so that a homeowner doesn’t necessarily have to go into foreclosure or short sale.

We do expect to see a little bit of a spike, but I don’t think it is going to impact the market all that much. Like I say, we’re down to two months’ inventory in American Canyon, which is really a seller’s market.

RR: I believe inventory is going to start seeing an impact from the modifications and the refinances. The latest numbers I saw showed that the loan modifications and refinances in the fourth quarter were up 76 percent over the quarter before. I think we are going to see even more of that.

LJ: In addition, the lenders are getting more savvy. They are streamlining their processing, they are learning how to put properties on the market so they are not dumping them. As this market absorbs these properties, these lenders will be raising the price of properties. That’s going to fuel the immediacy of the buyer.

RR: Most of us have been finding for many months that, in this market, the existence of multiple offers is many times driving up the price beyond the list price. It’s a shock to buyers, they come into the market, reading the paper, watching television — and they are literally stunned they are having to compete.

BK: Should buyers of bank-owned properties expect the process to be different from buying home listed in the traditional ways?

RR: Dealing with what we’ll call a conventional seller versus a bank can be very different. I think you need to come in pre-approved. You need to work with the lender and just really get educated about the process. You need to be ready to go. You need to know that if you are at the lower-end price point, you are going to be competing.

LJ: I want to add a word of caution on that. Buyers buying lender-owned properties and buyers buying short-sale properties need to use due diligence. They need to get inspections, they need to get reports, they need to check with the city. You have to understand that with a lender (as a seller), the rules are different. The disclosure rules are pretty much nonexistent.

BK: Is there some international and regional interest in the valley, because it is famous, beautiful and exclusive place?

KS: Buyers of Upvalley residential property haven’t changed that much. It is still very much a strong second-home buying market primarily driven by the Bay Area, people who know this is within driving distance, and there’s money, and they were just sort of waiting for things to get more realistic.

With regard to some of the foreign investments, I had a very interesting experience working with a group of buyers from China. They were looking for A-plus premium properties and vineyards. What they said to me was that in China, the only thing that is really known about wine as far as the United States is concerned is Napa, cab and California. Those things are synonymous.

That’s why they want to be in Napa. It doesn’t make sense for them to go into Sonoma or Mendocino or the Central Coast and some of these other regions that really aren’t known very well in China. They want to buy the location, they want to buy the quality of the vineyard, a high-profile winery with a retail tasting room.

While we’ve seen some ups and downs in the residential market, (vineyard properties) have stayed surprisingly steady, because what you get for a ton of grapes has remained strong and steady.

LJ: We also have to look at Napa. We had a walk-in several weeks ago, husband and wife, they were in their 60s, they wanted to buy a property on the river. They wanted to pay cash, they were from the east coast — and we appeal to that type of person. We’ve been showing vineyard property to people from Italy. We had a prospect from Argentina. So, I think, we need to look at our county as whole.

GS: I’ll jump on the agricultural side for one minute. We have a couple of agents who specialize in farm sales, and we’ve seen a lot of interest by well-off urban individuals wanting to start farms. Diverse farms, not just vineyards. We sold a goat farm last year to a couple out of Berkeley.

There’s this movement called localvore, (eating locally-grown and produced foods). It is a big thing in the urban areas and people are out shopping for diverse farmland. I have a couple of people just working on that.

BK: How does our market differ from the rest of the region?

GS: Healdsburg and St. Helena have kind of a scary similarity, Healdsburg being viewed as the Upvalley of Sonoma County.

If you look at inventory and sales, where they’ve been the weakest over the last 12 months has been Upvalley in Napa and Healdsburg in Sonoma. Similar to what Katie said about the Upvalley, I noticed last month sales jumped about three times in Healdsburg.

Solano is a whole different beast. When I was up in Fairfield for a builder event, the building inspector was attending the meeting. They asked him, “How many permits have you issued this year?” They were issuing in Fairfield an average of 700 new home construction permits a year. But in 2008 they issued 17.

Those markets, Fairfield, Vacaville, Solano County, in general are very strongly driven by new home construction. You see the same thing in the Stockton area, Sacramento — those areas screeched to a halt.

BK:  What might you say to a prospective buyer or seller in this market?

RR: One of the greatest things from the stimulus package and what’s been going on with the government in its efforts to offer more liquidity and keep rates low is that they restored the old higher-loan limits. The loan limit right now in Napa is $729,750. If you are a qualified buyer, you have a job and you have good credit and you have a 20 percent down payment, there is wonderful financing in that middle range.

JN: In any market, it really depends on the seller’s motivation and the seller’s need. I got a call today from someone who was asking whether or not it is a good time to sell. That’s not a yes or no answer, so I’m going over later on today to have that conversation on the family goals. What is it that the family is trying to accomplish? Saying is this or is this not a good time to sell really depends on family circumstances. That’s not just in 2009, that’s all the time.

GS: It’s always important to come back to the fact that a home is a home. It has utility value; you live in it.

We work with these statistics and these values, they fluctuate over time. But the home and the need for it is always going to be there. And our government inspires and supports owning a home. It’s an ethic we’ve had in our country since the beginning.

LJ: I think it is extremely important to analyze or to interview carefully who you work with. A Realtor has to be able to understand the psychological impact, the financial impact, the social impact.

Our real estate savvy is based on the community as a whole. We live here, we work here, we’re involved in charities here, we interact with home inspectors, termite people, roofers, carpet vendors, we interact with people of all walks of life. The team approach, the community approach is so important.

BK: Where do you think the market will be in one year or five? Anybody bring a crystal ball?

RR: I think I speak for all of us in this room when I say none of us would or could predict what the market is going to do, and I don’t think we would even try. I think what we can do is look at history. The National Association of Realtors has been tracking home prices for the last      40 years. In 40 years, 2007 and 2008 were the first years where they took a downward trend. If you bought a home in 1984, you would have averaged a            5 percent annual appreciation rate. If you bought in 1999, it would be over            6 percent. Even if you bought in 2003, counting the downturn in 2007 and 2008, you would have averaged a 3.3 percent return. You just have to pay attention to the history and what’s going on.

KS: In looking at the times in the market that have been slower, what we might consider buyers’ markets, Napa Valley is usually one of the last to experience the pain, we usually experience it to a lesser degree, and we bounce back quicker. That’s been the case historically.

RR: I think we’re seeing some really positive signs right now. One of them is housing affordability. Housing affordability is at the highest rate this decade. That means that in this community, all of a sudden, our clients’ children, their grandchildren, our teachers, our firefighters, people that work in our community are able to live here now.

The silver lining of this market is, I think, in the end it is going to be very positive for our community. Affordability is way up, we have historically low rates, plenty of financing, we have government help right now with tax credits both federal and state. We have interest rates that are remaining low, that they are predicting are going to remain low for a little while here.

HGTV came out last week and talked about the top 10 bargain markets for home buyers in America and Napa is No. 6. I think that’s just one more positive sign for our marketplace.

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