More than four years after the housing bubble slashed home prices in the East Palo Alto area by 50 percent, some Realtors are seeing a moderate comeback in home prices.

"You've got to remember that you're coming from lows -- post-subprime debacle lows. They're going up but they're going up from low 200s," Realtor Ken Harris, Century 21, East Palo Alto, said. "Now you're seeing them in the high 200s and low threes."

Home prices have gone up slightly because of low inventory, a competitive buyers' market due to low prices relative to surrounding areas, and historically low interest rates, he said.

"We're not talking leaps and bounds here, but I started to notice prices go up around May or June," he said.

Between June of 2010 and June of 2012, single-family home prices in the area have seen a 6 percent increase, from $250,000 to $265,000, according to information from the Silicon Valley Association of Realtors.

However, during that same time, there was an 11 percent decrease in home sales, from 93 in 2010 to 83 in 2012.

"People aren't selling -- they're holding on to what they've got," he said. "Foreclosures are decreasing and the inventory is drying up because of it."

Realtor Arn Cenedella, Coldwell Banker, Menlo Park, who has been selling homes in the area for 20 years, said he saw some properties worth $600,000 before the housing bubble fall in value to less than $300,000 after it.

Recently, he's seen prices creep back up.

"The foundation has been set," he said. "Prices have come down to reasonable levels that are affordable to East Palo Alto levels."

Home prices may be going up, but foreclosures remain a fact of life in the area, he said.

According to the Silicon Valley Association of Realtors, there were 122 foreclosures in East Palo Alto in 2010, 30 in 2011, and 107 so far in 2012.

He said the seemingly low numbers in 2011 were the result of a state lawsuit against irresponsible and illegal foreclosure practices that had a chilling effect on lenders pursuing foreclosures.

"Once the suit got running lenders stopped processing as many foreclosures," he said. "Either the lenders were prevented from processing them due to the lawsuit or they decided to back off while it worked its way through the court."

One of the results of the multi-state lawsuit, which settled in February for $26 billion, was a 90-day increase to the typical foreclosure process.

"So there's still plenty out there, but they haven't been processed yet," he said. "We're still a long way from dealing with the short-sale and foreclosure issue in East Palo Alto."

Cenedella said the large number of short sales and post-foreclosure, bank-owned properties make a market conducive to investors. Typically the less expensive areas appeal better to investors looking to rent because it covers more of the ownership costs than in the expensive areas.

"If you buy a house in Palo Alto for $1.2 million you could probably rent it for $3,500 a month," he said. "Contrast that with buying a house in East Palo Alto for $300,000 and renting it for $2,000 -- it will appeal better to investors."

Harris said homebuyers this year are a mix of prospective homeowners and investors, some of whom buy and flip the houses and others who keep them.

"Now is just a good time to buy in general because of interest rates," he said. "That just lets everybody in because more people can afford it. Most of the houses are getting offers on them now."

Realtor Christina Nguyen, Itosca Properties, Redwood City, has been dealing primarily in selling short sales and bank-owned properties in the area for around six years.

During the height of the bubble Nguyen said she saw more people buying to find a place to live, but these days she sees about a 50-50 split between prospective homeowners and investors.

Among investors Nguyen said she's seen about an equal mix of investors who buy to flip and those who hold on to their homes.
"A lot of investors are pulling money out of the market to buy and keep," she said. "If you're getting $1,900 a month, then that's a much better rate of return than keeping that money on the market."

Cenedella said the widespread wealth found on the Peninsula makes an environment that puts the average prospective homebuyer at a disadvantage.

"What you see in Palo Alto, and this is true all up and down the Peninsula, is that the number of buyers who can pay cash for these properties will blow your mind," he said.

The high level of foreclosure and short-sale houses, which are usually in poor quality, in East Palo Alto also favors investors over prospective homeowners, he said.

"If someone can't pay their mortgage, they probably aren't going to repaint their house or fix their roof," he said. "Many are often in such a condition that they don't qualify for financing, even if it's an A-plus borrower. Lenders just don't like properties that are banged up."

Nguyen said that while home sales have started to go up slowly in East Palo Alto, she doesn't expect them to get much higher.

"The appraisers aren't going to allow (home prices) to go up anymore because they're not going to appraise higher than the offer price they're in contract for," she said.

Additionally, Nugyen said lenders often hire appraisers from way out of the area who may not be familiar with the area, which often negatively affects the appraisal price.

Harris said that "redlining" or "lowballing," the comparatively low appraisals given in East Palo Alto, are common.

"It always seems to get harder than other areas," he said. "What's the difference? The schools? Income? Market value? There shouldn't be such a great disparity."

Editorial Assistant Eric Van Susteren can be emailed at evansusteren@paweekly.com.

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