There were 94 closed sales of single family homes in Yuba and Sutter counties in February according to MLS records. This is up slightly from the 81 sales recorded in January. However, the number of new contracts written in February and March is up dramatically from previous months.

There were only 76 successful contracts written in November and December’s number of 90 was only slightly better. By contrast, there were 137 contracts in February and, as of March 30th, there have been 179 contracts written this month. While not all of the February and March contracts will close, this is still dramatically better than in previous months.

The single biggest factor in the increased sales volume seems to be that rapidly declining prices are finally attracting large numbers of buyers back to the housing market. Bargain priced homes have both renters and investors recognizing that the gap between the cost of renting and the cost of owning has dropped to a very low level. In fact, we have recently been involved with 7 sales that had between 4 and 14 offers on each property.

While the news is mostly good, it does not appear that all of the market’s problems are behind us. There were 67 foreclosures in Sutter County in February. Our foreclosure data goes back to January of 1995 and this is the highest number seen in that period. The previous high number was 45 in December of 2007. Also, according to a Bank of America study reported on in the Wall Street Journal in November, we have not reached the peak in the resetting activity with the adjustable rate mortgages (ARM's).

In today’s climate, the vast majority of borrowers foreclosed on are at least 10 months behind in their payments on the day of the foreclosure sale. Given the situation with the ARM's and the time it takes to foreclose, it seems likely that we will see high numbers of foreclosures well into 2009.

Besides the higher number of foreclosures, there are two other major areas of concern for the real estate market. The recent collapse of Bear Stearns (from $58 per share on March 13th to $2 per share on March 16th) illustrates the weakness of our financial markets. The other area of concern is that the Federal Reserve’s lowering of the Discount Rate and the Federal Funds Rate to restore stability to the financial markets continues to cause weakness in the Dollar. A weak Dollar will likely lead to increased inflation and higher interest rates on fixed rate mortgages.

Despite the higher number of foreclosures, the number of months of inventory dropped to 9.1 months in the Yuba-Sutter area. This is still a high number and will likely lead to more price cutting. However, it appears that there are ample numbers of buyers to absorb the increasing number of foreclosure properties coming onto the market. Any further price declines will likely cause even more buyers to enter the market. While prices may not have bottomed out, the increasing number of buyers will likely cause inventory numbers to decline.