Sonoma Housing Bubble

Pulling the cork out of Sonoma's bubbly housing foolishness

Tuesday, March 21, 2006

Who isn't Stretched?

"In just over half a decade the number of America’s working families paying more than 50 percent of their income for housing has grown 76 percent, according to a new study released today entitled The Housing Landscape for America’s Working Families 2005, conducted by the Center for Housing Policy, the research affiliate of the National Housing Conference (NHC). Specifically, in 1997 2.4 million working families spent more than half their income on housing, but by 2003 this number had grown dramatically to 4.2 million."

"One of every 8, or 14.1 million of all families had critical housing needs in 2003 – that means they paid more than half their income for housing, and/or lived in physically dilapidated conditions."

"Owning vs. Renting
In 1997 the number of working families with critical housing needs was split roughly 50-50 between owners and renters at 51 percent of homeowners and 48 percent of renters. However, by 2003 the number of homeowners with critical housing needs reached 55 percent and the number of renters with these needs was lower at 45 percent."

"Suburbs vs. Central Cities
When comparing suburbs to central cities, most homeowners with critical housing needs lived in the suburbs, and 1 out of 4 lived in central cities. For renters, more than half lived in central cities, 4 out of 10 lived in suburban areas, and less than 1 out of 10 lived in non-metropolitan localities."

"A total of 42 percent of all working families with critical housing needs lived in the suburbs in 2003. This compares to about 39 percent of working families with critical housing needs that lived in central cities – dispelling a popular myth that families with these needs are primarily found in cities."

"Regional Data
By region, the data reveals that the highest incidences of critical housing needs are found in the West and Northeast."

"The irony of today's housing market is that while fundamentals are supporting record levels in residential investments, housing affordability problems are climbing the income scale," said Nicolas Retsinas, director of Harvard University's Joint Center for Housing Studies.

The center found that nearly one in three American households spends more than 30 percent of income on housing, and more than one in eight spend upwards of 50 percent."

"These "house-poor" Californians have been a significant contributor to the state's housing boom, according to a study by the Public Policy Institute of California, a Bay Area nonprofit think tank."

"More Californians are stretching their finances to afford the state's ever-more-expensive homes, with 20 percent of recent home buyers plowing more than half their monthly income into their mortgages."

"It concludes that many recent buyers aren't rich newcomers but moderate-income thirtysomethings who are accepting hefty mortgage payments to get into the market."

"The percentage of recent California home buyers spending half their monthly income on housing is twice the national average, said Hans Johnson, who co-authored the study."

"1 out of every 5 recent California homebuyers is spending 50 percent or more of his or her income on housing costs -- twice the national average."

"Ever wonder how anyone can afford a house in the Bay Area these days?
Here's one way: Lenders are assuming that borrowers can devote an ever-growing percentage of their income to house payments."

"Bay Area home buyers with good credit ratings can qualify for loans that will require them to devote 40 to 50 percent of their gross income (not net, mind you) to housing and other debt payments. Some mortgage brokers have completed loans where debt repayment represented 60 to 75 percent of the borrower's gross income."

``I've been able, with a big enough down payment and a good enough credit score, to do a loan with a debt-to-income ratio of 75 percent,'' says Margaret Ashwell, a mortgage broker with Pacific Guarantee in San Francisco.

Housing affordability in Marin County and in the BayArea as a whole has become an increasingly importantissue.

It is estimated that one-third of all households currently residing in Novato are paying more than 30 percent of their income on housing.

It is estimated that 41% of all households currentlyresiding in San Anselmo are paying more than 30% of their income on housing.

One in ten families in San Mateo County spend more than half of their income on housing.

More than one-quarter of Boston's mortgage-holders appear to be stretched thin financially, spending at least half their income on housing, according to an analysis of census figures. That's more than twice the national average and the highest of any major city except Miami.

"Fully 27.1 percent of the city's homeowners with a mortgage spent at least half their gross income on housing in 2004, according to the latest census figures available.

Those costs, which include utilities and insurance as well as mortgage payments, were more than double the national rate of 11.7 percent and topped:

New York (25.9 percent)
Los Angeles (26.5)
San Francisco (20.4)
Chicago (20.3)

Of the 25 biggest cities, only Miami had a higher rate (35.8 percent)."

Are you wondering where the Sonoma/Sonoma County statistics are for how much of the population is paying more than 30% of their income on housing costs?

Yes... me too. Actually, unless it is just well hidden or not released to the public... the last study in Sonoma County was back in 1998. Back when the housing affordability was MUCH higher. Now we are at a situation where Sonoma County has about the lowest affordability in the state of California.

Fewer than 7% of households... that is combined household income can afford to by a home. However, Sonoma County has been very proud of its housing boom since 2000. SO... what does that tell you? Those who bought the homes, likely could not afford them by traditional measurement standards. Therefore it is pretty reasonable to conclude that at least the average number of Californians who overleveraged themselves into homes, probably applies to Sonoma County.

I suspect the ratio of % of households spending more than 50% of their income on housing costs in Sonoma County is probably higher than the state average. But even if it is only 20% of recent home buyers since 2000 who are overleveraged above 50%... that is a pretty big number for such a small county.


At 3/21/2006 11:00:00 AM , Blogger Marinite said...

Great post. I wonder where the breaking point is? I mean, people are willing to spend so much of their income on housing recently because they expect their houses to increase in value. If house appreciation tapers off (as it seems to be), what percent of their income will they then be willing to sacrifice? Another way to put it, how much is it worth to people to be "house poor" in the Bay Area?

At 3/21/2006 11:59:00 AM , Blogger Athena said...

Great point... my question is really how many have ever been this "house poor" before?

How many people have ever really been in the unique circumstances of historicaly low interest rates with the kind of creative financing options that we have seen in recent years?

It is not enough to say that home ownership has increased... previous to 2000 the standard qualification to become a home owner were much stricter- and fewer people could "afford" to financially leverage themselves into a house. Even with those standards there were still basic trends in % of foreclosure and the number of people who over-leveraged themselves was fairly predictable based on general statistics.

NOW we have fewer who could actually qualify/afford to buy a house, yet record numbers of people leveraged into property...

I don't think the last two generations have anything to compare with what we have right now...

We don't know what it is worth... we don't know what it is worth until the economy blinks... when it does, we will see how the overleveraged respond... we will then see how the highly leveraged respond... who gets beat up by their leverage first and in what numbers is what will be the harbinger for what comes next. How long can the over-leveraged hang on?

At 3/21/2006 01:24:00 PM , Anonymous Anonymous said...

the percentage figures given here are understated to a significant degree due tothe prevalence of stated income and nina loans (no income,no assets)for first time buyers in california,nina loans became popular with loan originators because they lessen the risk of going to prison for committing mortgage fraud,i had a senior underwriter tell me there was fraud in 40% of the stated income loans they approved....they call these liars loans in the biz,and the lenders are very well aware of these long as they can sell them they don't care.morrrvd

At 3/21/2006 02:43:00 PM , Blogger Athena said...

great point anon... also these figures are severely understated because the data only goes up to 2003. In 2004 and 2005 the number if I/O no doc loans doubled... and of course the median house values also hockey sticked in those two years making the I/O no doc loan a necessity due to unaffordability. The income to debt ratios wouldn't have passed the smell test any other way and likely those sales wouldn't have happened. Which means... the housing bubble would have leaked air much sooner but for the media hype and real estate hype chasing the last hold outs out of their rentals for fear of being priced out forever. I think the bushes have been beaten soundly, and I imagine the majority of people who bought in the last 2 years were people who couldn't afford to.

At 3/21/2006 10:56:00 PM , Blogger moonvalley said...

Headline story in Yahoo news just a few minutes ago
U.S. Homeowners in Peril As Boom Collapses

At 3/22/2006 08:26:00 AM , Blogger Athena said...

thanks MV- some snippets from the original article are in the post... but the from the sounds of it... Boston is in real trouble. How come there is so much silence on it? Is it because the article highlighted that the low income earners who bought homes are the first likely victims?

I did see a blip on the screen about a bill being looked at regarding predatory lending... I wonder if we will wait for the middle income people to be screaming before that bill gets better defined?


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