Like many people who sell real estate, Jan Patrick looks forward to spring, the time of year when homebuyers traditionally pop up like daffodils.
In recent springs, the crop of buyers has been disappointing as a woeful economy drags on.
This year, the outlook is brighter, with rays of sunshine piercing a cloud of foreclosures. After six years of decline, Patrick says home prices are gelling. Mortgage interest rates are at historic lows, 3.87 percent for a fixed-rate 30-year loan, according to Bankrate.com. Interest on a 15-year mortgage is averaging 3.16 percent.
“We think the market is stabilizing in terms of value and that is giving buyers the confidence they need to commit to a home,” says Patrick, a Patterson Schwartz broker in Hockessin. “Who wants to be the fool who overpays in a market that has been in decline?”
In New Castle County, the median home price has diminished from $235,000 in 2005 at the height of the housing boom to $170,000 in January 2012, according to TREND, a multi-listing service based in King of Prussia, Pa. In 2005, 8,300 homes sold in New Castle County. In 2010, 4,300 homes sold.
Patrick believes sales will improve this year, hitting the 5,000 mark. The toughest properties to sell will be properties priced at $500,000 or more, especially if the buyers require a jumbo loan, defined as $417,000 or more.
Across the board, buyers can expect continued scrutiny from banks who demand good credit and a steady stream of income.
“We don’t see prices going up but we do think they will be steady,” she says. “No matter what the price is, you must be creditworthy and job secure.”
More Coverage: Foreclosures remain a drag on Delaware housing market
At the beach, a wave of foreclosures has pushed down prices more than 30 percent in the past five years, says Vickie York of Ocean Atlantic Sotheby’s International Realty in Bethany Beach.
Still, buyers aren’t swooping in to snap up bargains.
“With huge inventory and very low interest rates, it’s difficult to create any sense of urgency,” she says.
Buyers of second homes have grown more conservative, choosing a pied-à-terre near the water over an oceanfront mansion. In 2006, 28 percent of the homes sold in Sussex County were priced at less than $300,000, according to an agency market analysis. In 2011, that number had grown to 45 percent.
“Many buyers can afford more but are choosing to spend less,” York says. “Someone who could easily spend $700,000-$800,000 is being much more budget conscious and will spend $400,000.”
This spring, home shoppers in several developments are once again hearing the hum of power tools that had been idled when the builders lost the properties to the bank.
At Millville by the Sea, single-family homes and townhomes are now being built by Miller & Smith, a Washington, D.C.-area developer who bought the site at a deep discount from the bank after the original developer defaulted on the loan. Townhomes start at $184,900. Single-family houses start at $239,900.
At Forest Landing in Ocean View, Ryan Homes is selling semi-detached villas starting in the low $200,000s. Since July, 22 homes have sold.
“Because the developers were able to get the land for less from the bank, they can offer a new product at an exceptional price,” York says.
A glut of affordable new construction makes it more difficult for sellers of existing properties, some of whom bought at the height of a sizzling boom in Sussex County. Recently, York was faced with the unpleasant task of informing sellers that the home they thought would fetch $329,000 should be priced at $289,000.
In this case, seeing was believing.
“I took them around and showed them comps so they could re-evaluate their asking price,” York says. “After they saw similar properties and the prices, they understood what they are up against.”
In response to consumer requests, she began posting a designated page for short sales and foreclosures on her website. She recently worked with two distressed sellers, who turned over the keys to their vacation homes to the bank in order to avoid foreclosure.
“It’s very emotional as a realtor to help people who had a very comfortable life and lost a job,” she says. “In some cases, someone has lost a job and also is going through a divorce.”
York toured several bank-owned properties and was struck by the remnants abandoned by the previous occupants, pieces of the tattered American dream of homeownership.
“They obviously belonged to families,” she says. “There were toys and children’s clothes left behind.”
Turning the tide in the beach market will take time, York says. The first to trickle back into the market are couples age 45-60 who are looking for second homes, followed by retirees shopping for a primary residence.
“The boom in Sussex County is something we won’t ever see again,” she says. “But I do think the worst of the downturn is behind us.”
In Kent County, the average median price of single-family housing continues to edge down from $230,000 in January 2007, according to TREND statistics. In January 2009, the median price was $213,000; in January 2011, it was $175,000. This January, the median sale price was $165,000.
But volume is on the rise, notes David Litz, office manager at Keller Williams’ central Delaware office in Camden, Wyoming. This January, 85 homes went to settlement, compared to 55 homes in 2011.
“We are seeing multiple offers on short sales and that is an encouraging sign,” he says. “This time last year, we were lucky to get one offer.”
Investors are buying distressed properties in communities in suburban Dover, such as Royal Grant and Rodney Village. Litz says the strategy is to buy low, make a few improvements, and put the house back on the market at a highly competitive price.
“You just need to be the cheapest house on the block,” he says.
While there are few takers for properties priced from $300,000-$450,000, Litz says the high end is enjoying a boomlet due to an influx of professionals to the area. Bayhealth Medical Center is expanding, opening a new cancer center and emergency department at Kent General Hospital in Dover. And a group of doctors and other healthcare providers are relocating from a government installation at Fort Meade in suburban Baltimore to Dover Air Force Base.
The market for custom homes in the $500,000-plus range is especially strong. Litz points to activity at the Ponds of Willow Grove, a community in Camden Wyoming.
“We had been moving only one or two homes a year there,” he says. “Now, there are four under construction at the same time.”
At the entry level, sellers have internalized the drop in the market and are increasingly willing to sharpen their pencils and price their properties competitively.
Many would-be buyers, accustomed to deep discounts, still insist on making low-ball offers.
“I don’t know how prices could go any lower,” Litz says. “But buyers are wanting to make offers that are 20 percent less than the listing price.”
He expects it will be at least 10 months before the market can absorb the foreclosed homes that continue to enter the market.
Litz says tighter standards for credit will ensure far fewer foreclosures in the future.
“We actually had a bank ask for transcripts to make sure the tax returns matched the paperwork submitted by a buyer,” he says. “The days of easy credit are over and more people are saving for houses, just like the good, old days.”