SANTA CRUZ (September 28, 2008) - According to the statistics on the Santa Cruz Association of Realtors’ (SCAOR) website, the median price of a single family home (these statistics exclude condominiums) in Santa Cruz County for the first half of 2008 was $643,000. In the first half of 2005, when the rapid appreciation rates began to flatten, the median home price was at $750,000 (the peak was $793,000, reached in June, 2005). This decline since the first half of 2005 represents a 15% reduction over three years.

The interesting aspect of statistics is that there are so many different ways to look at them. Graham Morland, broker and owner of Sterling Properties, a real estate firm here in the county, interpreted the county statistics a little differently. He reasoned that when viewing median home prices here, the north end of the county and the south end of the county should be separated from the middle of the county.

When he removed the San Lorenzo Valley and the Watsonville markets from the mix, he came up with a considerable difference in home price decline. For the middle of the county, the median price of a home in the first half of 2005 was $805,000 and in the first half of 2008, the median price of a home was $720,000.

First of all, the median price of a home in the middle of the county is 7 - 11 percent higher than for the county as a whole. Secondly, the decline in home values in the middle of the county since the first half of 2005 is just 10.6 percent, which is considerably less than the 15 percent drop in prices for the county as a whole.

What is having a bigger impact on our economy is the fact that home sales are down over 46 percent. County wide, according to the SCAOR, there were 1119 sales in the first half of 2005 and only 596 sales in the first half of 2008.

There are two reasons why home sales are down so much. In the first place, I believe that prospective homebuyers are waiting for home prices to reach the bottom. Of course, no one will know when that point is reached until after it passes and home prices are on their way up again. Remember, real estate ups and downs are just like anything else in the economy, they are cyclical.

The other reason is that mortgage lending underwriting guidelines are almost back to where they were when I first got in the business in 1986. Lenders are now requiring buyers to have some cash for the down payment, reasonable (not necessarily stellar) credit and enough documentable income so borrowers are not paying more than 60 percent (some loan programs are currently restricting this ratio to 45 percent) of their gross income (net profit for self employed borrower) on all of their monthly debts, which includes the Principal, Interest, Taxes and Insurance (PITI) of their new home. By the way, when I first got in the business lenders were restricting borrowers to a DTI ratio of 33 percent and that was when interest rates were above 10 percent!

No one will argue the fact that home values are down here but we are clearly not affected here in Santa Cruz County as much as some would have us believe. Homes are selling that are in good locations, are in reasonbaly good shape and are priced to the current market.

This column is written every Sunday by Peter Boutell, Certified Mortgage Planner and a principal at Santa Cruz Home Finance. You may reach him at (831) 425-1250 of email him at Peter@SantaCruzHomeFinance.com.