Earlier this year Herson and Liz Enerio put in a $400,000 bid on a four-bedroom house on a private street in Fairfield, Calif., with three pine trees and a backyard that opens onto a hiking trail.
One would think that the 30-year-old police officer and his wife, who works as a nurse, were well positioned to negotiate, especially in a market like Fairfield, a town about 40 miles from both San Francisco and Sacramento where more than 80% of homes for sale are owned by banks or by homeowners facing foreclosure. For one thing, the people selling the home are under water on their mortgage and are trying for a so-called short sale, where the lender agrees to take less than what's owed to prevent a foreclosure. But the Enerios decided to play it safe, bidding $1,000 above the asking price and offering to cover some of the closing costs, because Fairfield—like many of the most battered areas of California, Florida, Nevada, and Arizona—is suddenly hot again.
Prices have dropped so low that cash-ready investors and first-time buyers are making multiple offers on distressed properties. Fairfield sales jumped 226% in the fourth quarter of last year compared to the same quarter in 2007 and home prices during that period fell 19% to $179,500, according to mortgage and housing data analytics company First American CoreLogic.
The Enerios bid on another house in November but lost out to a buyer who agreed to pay $5,000 more. They're hoping that their current offer is accepted, but they aren't necessarily in a rush to buy. Homes in this Bay Area market are once again affordable for people in their income bracket.
"I tried looking for a home when I was living in Orange County four years ago, but homes there were ridiculously expensive," said Herson Enerio, a first-time buyer. "The only thing I was able to handle down there was a three-bedroom condo… Now we're looking at a house for sure."
Not All Sun Belt Cities
The Fairfield ZIP code had the biggest annual increase in sales in the fourth quarter of last year, according to a ranking of the 25 U.S. ZIP codes with the most improved sales compiled for BusinessWeek.com by Santa Ana (Calif.)-based First American CoreLogic. California, Florida, Arizona, and Nevada ZIPs dominated the list, as we expected, but Howell, Mich., near Detroit; Woodbury, Minn.; Rio Rancho, N.M.; Humble, Tex., outside Houston; Duluth, Ga., in the Atlanta metro area; and the Chicago suburb of Des Plaines, Ill., also showed strong or at least stable sales at the end of last year. We limited the ranking to ZIPs with at least 10,000 households and selected only one ZIP for any given metro area. (If we hadn't done this, California would have taken almost all of the top 25 slots).
Of course, even though sales are strong in these places, the pace is increasing from anemic levels. In many markets, foreclosure sales are driving down prices, which are only making things worse. At the same time, the accelerating sales pace appears to be finally cutting into inventories of unsold homes.
In Fairfield, for example, about 1,900 homes were listed for sale in January compared to 3,000 listings in January 2008, according to Christine Wiley, a Fairfield-based agent who works with her Realtor mother Katherine Wiley. But Christine Wiley, who has studied the pre-foreclosure data, said she expects another wave of foreclosures in Fairfield. Many of the homes built in Fairfield during the boom have been taken back by the banks, but even more are likely to be foreclosed on, she said.
Across the country in Prince William County, Va., outside Washington D.C., buyers are out in force. The market, where subprime loans and boom-time construction were rampant, was badly damaged in the downturn. Making matters worse, a controversial law in Prince William County that allowed police officers to enforce immigration laws helped drive out many of the Central American immigrants who came in to work on building the new homes during the boom. Many of those immigrants who moved to neighboring Fairfax County allowed their Prince William County homes to go into foreclosure, said John McClain, senior fellow at George Mason University's Center for Regional Analysis.
Proximity to D.C. Helps
The good news now is that inventories of unsold homes are shrinking because of the accelerating sales, though homeowners who could afford to have also likely taken their properties off the market, McClain said. In January, 3,346 homes were on the market compared to 5,355 in January, 2007, McClain said. In January, 647 homes sold in Prince William County compared to 312 a year earlier. Home prices, however, fell 34%.
One factor that could help Prince William County toward recovery is its proximity to Washington D.C., one of the few local economies with relatively good prospects thanks to its federal government and defense contractor jobs. Woodbridge, Va., in Prince William County, came in at No. 14 in our ranking. Woodbridge sales jumped 32% in the fourth quarter while median home prices dropped 18% to $215,500, according to First American CoreLogic.
The drop in inventory and the rise in sales are "good signs" for Prince William County, McClain said.
"We are at that point with that trend [in Prince William County] where the economics have to kick in," McClain said. "Prices have to stabilize and then start up again."
Erick Blackwelder, associate broker with Exit Realty in Woodbridge, said buyers have flocked to the market and have already bought many of the foreclosed homes that were in good shape. The remaining foreclosures are largely "junk," he said.
"It started in April 2008," Blackwelder said. "It was like all of a sudden, somebody flicked on a light switch and there were buyers galore."
Click here to see the ZIP codes in the U.S. with the most improved housing sales.
Gopal writes about real estate for BusinessWeek in New York.