SANTA CRUZ -- Paul Bailey, a 38-year real estate veteran, expects a spike in home prices in Santa Cruz County.
"Who is to say that we are not going to jump 30 percent this year in home values?" said Bailey, co-owner of Bailey Properties in Aptos, which has 118 agents. "I am not predicting it, but it is looking very possible."
Why? Because in the last quarter of 2012, the number of homes listed (435) was less than the number of homes sold (499), and the last time this happened, in the last quarter of 2004, home prices escalated.
"I think we have seen a 10 percent or more jump in values now, today, over the holidays," he said. "We don't have as much inventory now as we did back in 2004, but we have the same dynamics ... we have moved to a seller's market."
That's a huge shift coming after six years of foreclosures once the housing bubble burst.
David and Valerie Peet put their three-bedroom home in Santa Cruz Gardens up for sale this month, asking $629,000. They got five offers in one weekend, and it sold in four days for more than the asking price.
"Every offer was for over asking," said their agent Scott Cheney of Bailey Properties. "There's quite a bit of demand, and not a lot of inventory in the middle of winter. You know you're going to have competition."
The Peets, who have two children, are buying a slightly larger house in the same neighborhood.
Shawn Houghton thinks so.
A teacher, she bought her two-bedroom home on Goss Avenue in Santa Cruz 10 years ago, decorated it in French country style and enjoyed gardening and topiary there.
When she saw inventory dropped by half, "that motivated me to list it," she said, thinking of prepping for retirement.
Not that she has to sell.
"If I don't get the price I want, I'll rent it," she said.
She's asking $579,000.
Tai Boutell of Santa Cruz Home Finance said he is seeing changes in the market, too.
"First-time buyers making offers below list prices are generally not winning the bids," he said. "It takes some counseling to help them realize they have to be aggressive with offer."
He said it's not unusual for a home to go into contract higher than the asking price or to sell for a price that's higher than the appraisal.
"If the appraisal doesn't support a higher price, in many cases, the buyers are willing to move forward," he added.
He said he expects interest rates, between mid-3 percent and 4 percent, slightly higher than the historic low, to rise in the second half of the year.
"We are still a long way for being anywhere near 2006 values," said local appraiser Glenn Fuller, but he agreed "the market seems to be turning around."
By his calculations, the median price, the midpoint of what sold, is down 25 percent from 2006 in the city of Santa Cruz, down 44 percent in San Lorenzo Valley and down 56 percent in Watsonville.
But in 2011 and 2012, the median price rose $50,000 in Aptos and $40,000 in San Lorenzo Valley, Capitola and Soquel. That has brought relief to underwater borrowers, who owe more than what their home is worth. About 20 percent of mortgage-holders in the county have been under water.
"Some now have equity," said Robert Bailey, co-owner of Bailey
Fewer home sales are "distress sales," either owned by a bank that foreclosed or a "short sale," where the home is sold for less that what is owed on the mortgage.
In the fourth quarter of 2012, short sales accounted for 15 percent of home sales in the county and bank-owned homes 9.5 percent, according to Bailey.
"That's the lowest we've seen in the past three years," he said, noting bank-owned sales used to comprise 25 percent and short sales 15 percent to 20 percent. "The market is definitely healing itself."
Default notices, foreclosures and foreclosure sales are all trending down.
Last year, 1,070
Foreclosure sales, averaging 739 in 2009, 2010 and 2011, fell to 483.
For some, no help
"We're seeing a slow decline in the number of people who are still suffering," said real estate attorney Pamela Simmons of Simmons & Purdy in Soquel, where calls for help have dropped from 40 a week to 15 a week. "I don't think we will go back to 2006 at least not for many years."
She cited a couple who bought in 2006 in San Lorenzo Valley, paying $4,500 a month for a three-bedroom two-bath house that "is probably worth half what they paid."
They have looked and looked but haven't found a program to help them.
The California Homeowner Bill of Rights, which took effect Jan. 1, prevents lenders from starting foreclosure while borrowers are seeking a loan modification.
"I am seeing hopeful signs it may have its intended benefit," Simmons said.
The number of bankruptcy cases in San Jose federal court declined last year to 9,000 after peaking in 2010 at 13,000.
"I'm still filing bankruptcy ahead of foreclosure," said Santa Cruz bankruptcy attorney Sara Lipowitz. "The safest thing is to file, but I hate to file when it's not necessary."
Lipowitz said she is starting to see more loan modifications, but noted high unemployment (11 percent in December) makes it hard for borrowers to qualify.
Though there is no countywide rental database, indications are rents are going up.
Portola Property Management began raising rents after several years of no increases, with a three-bedroom home going for $2,100 to $2,900 depending on location, according to office manager Carol Lerno.
Peter Cook of Lighthouse Realty sees a shortage of rental housing in the city of Santa Cruz due to increasing enrollment at UC Santa Cruz, a stronger Silicon Valley economy and the city's rental inspection program.
Asking prices for a three-bedroom condo averaged $2,460 last year, up 7 percent from 2007-08, according to the UCSC Community Rentals Office.
Community rental listings have declined since 2006-07, which manager Janet Kennedy attributes to the elimination of duplications after a new system was installed in 2009 rather than economic factors.
Hundreds of rooms were added at UCSC's Porter College, keeping more students on campus.
The number of undergrads housed on campus rose 23 percent last year compared to 2005-06 while undergraduate average enrollment rose 13 percent, according to UCSC spokesman Guy Lasnier.
Suzanne Rodoni Silverberg of 831 Real Estate is one of several agents who have purchased foreclosed homes and resold them.
For the first time, she's asking herself whether it makes sense to resell or rent.
"The reason I feel I'm having this conversation is we're going to have appreciation this year," she said.
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Home prices recover
Decline since 2006
San Lorenzo Valley
All except Watsonville
38%Source: Glenn Fuller, appraiser