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Two-bedroom homes show signs of being on road to recovery

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POSTED April 27, 2012 1:22 a.m.

It was one of those conversations that tend to stick with you.

Back in 1998, Realtor Linda Aksland was standing outside a home for sale on Pine Street. We were discussing whether a two-bedroom home that had been listed for $92,000 would sell.

She thought it was an unsustainable price for the market and doubted it would fetch that kind of money for a number of years. Given that many two-bedroom homes during the housing bubble sold for more than $300,000 that observation now seems quaint.

But the real gem of the conversation was Linda pointing out how you could judge the Manteca market by the sale of homes less than 950 square feet with two bedrooms that were built on decent-sized lots in the 600 blocks of Fir and Pine streets back in the 1950s. The smallest homes are almost always the most affordable. That means the largest percentage of people in the marketplace for a home can afford to buy them - if they wanted to do so. As a result prices of such property usually go down last while the values go up first.

That was true in almost every housing cycle in Manteca including 1989 to 1993, when the last big drop in prices occurred. It was almost on the money for the current down swing in housing caused by liar loans and funny money mortgages. The exception, of course, is that as everything started going over the proverbial cliff homes in the middle-price range dropped last while smaller homes fell faster in price but not nearly as fast as McMansions.

Also during the initial rebound in sales, small homes lagged behind middle-price range homes slightly, but not much. McMansions, on the other hand, were at below bargain basement prices.

The reason for the exception is simple. Affordability levels in the Manteca market surged measured against the standards economists used to measure housing affordability. A market is considered affordable when the median-priced home that sells is 2.5 times or less the amount of the median income. Up until 2007, the medina-priced home in Manteca has been 7.5 times the median annual income. It is why people who lived and worked in Manteca could rarely buy a home unless they were already homeowners.

And as things become extremely affordable, people who would have had to settle for two-bedroom homes could easily afford three bedroom homes. Also, investors were more apt to snap up three-bedroom homes due to the housing glut created by foreclosures.

But now that the market has stabilized, the biggest year to year gains in home prices are being recorded by two-bedroom homes.

The two-bedroom homes that sold in Manteca during the first three months of 2012 had a median closing price of $100,000. That was up 15.6 percent over the first quarter of 2011 when the median for such homes closing escrow was $85,500. Compare that to $299,500 in 2007.

Meanwhile, three-bedroom homes were up 1.4 percent in value to $144,000 in year-to-year comparisons, four-bedroom homes dropped 2.6 percent in value to $190,000 while overall Manteca properties slipped 2.6 percent to $170,500 from $175,000.

What this all means is the bottom of the market represented by the most affordable homes has shown solid signs of being on the road to recovery.

And that must happen before prices start going up for other homes.

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