Sonoma Housing Bubble

Pulling the cork out of Sonoma's bubbly housing foolishness

Saturday, May 13, 2006

3rd Most Expensive... How Does That Make You Feel?


"Some Petalumans are not happy their city is part of the third most expensive housing market in the United States."

'"I think it's ridiculous. It's horrible," said Peggy Glover, 65, who has lived in the city for 20 years. "People should be able to afford to buy a house," she said."

"Glover, who works as a food-service supervisor at the Marin County Jail, was reacting to a New York Times story recently published on the front page of The Press Democrat."

"According to the story, it takes 60 percent of the typical household income to pay a typical mortgage in Petaluma and Santa Rosa."

"Glover is sitting pretty on a house on the east side that has become her nest egg. She bought it for $108,000 in 1988 and it is now worth more than $600,000, she said. It's nice to have something to leave to her son and grandchildren some day, Glover said. But she would much prefer it if her 41-year-old son could buy a home of his own in Petaluma now, she said. He rents because his intermittent construction job does not generate enough income to allow him to buy."
'"The prices are outrageous," said 20-year-old Trevor Sennello."

"Right now, he said he's trying to decide what to do with the rest of his life but figured out a while back that he probably would not be able to afford to buy a home in Petaluma."

"In any case, he's "not impressed" by what you can get for $500,000 or $600,000 in Petaluma these days, he said."

"Having news of Petaluma's expensive housing market broadcast to the world by the New York Times is not necessarily a bad thing, some said."

'"It says this place is special," said Barry Pectol, manager of Bell Home Loans on Kentucky Street."

Of course it is. Sonoma County is special. We are the chosen people. It is different here. Real Estate never goes down. You can't lose. They aren't making anymore land. Tinkerbell nests in the trees in the plaza in Sonoma Valley and sprinkles pixie dust all about. Everyone wants to live here.

Ding Ding Ding... we have a new winner of the HUA Award.

"The average person is going to put it together that something is going on here ... why would you want to pay so much unless it was worth it?" (Only if the average person has their head up their butt too.)

The cost of housing has not stopped people from buying, he said.

"Publicity about Petaluma's high housing costs may bring in a few more visitors, said Onita Pellegrini, executive director of the Petaluma Area Chamber of Commerce."

'"It's not going to make anyone go away. It's not going to make locals stop buying homes," she said. "Home prices are market driven and this is wonderful place to live."'

Yet another contender. Maybe she should get out more... and I don't know... do a little reading and a tiny bit of math. Take a look at the prices of housing in Sonoma County. Take a look at the houses gathering cobwebs on the MLS.

Sonoma County listings progression

3/20/06 = 1742
3/26/06 = 1766
4/03/06 = 1888
4/19/06 = 2828
4/25/06 = 2868
4/30/06 = 2898
5/07/06 = 3052
5/13/06 = 3187

Sonoma Valley listing progression

2/14/06 = 172
2/14/06 = 183
2/24/06 = 193
2/25/06 = 200
2/27/06 = 214
3/01/06 = 219
3/04/06 = 220
3/12/06 = 230
3/20/06 = 236
3/26/06 = 238
4/03/06 = 268
4/19/06 = 291
4/25/06 = 305
4/30/06 = 315
5/07/06 = 328
5/13/06 = 346

Let's review the facts...

* In Sonoma County, the average wage is $42,171

* Employment peaked in Sonoma County in 2001 at the end of the tech boom when the county had 196,700 payroll jobs.

* By 2003, the economic downturn had wiped out 7,600 of those jobs, based on average annual employment.

* Through 2005, only 2,400 had returned.

* The Press Democrat study found that 58 percent of the new jobs created between 2003 and 2005 paid below the average wage.

* It is estimated that 60% of the new jobs added between 2001 and 2003 were lower-paying service jobs that are below the county’s average wage of $42,171 per year.

* Fifty-eight percent of new jobs between 2003 and 2005 paid below the average wage.

* The number of jobs in the county is still 3.3 percent, or 6,500 jobs, below 2001.*

* Per-capita income fell 2.6 percent in 2005.

*Adjusted for inflation, per-capita income in 2006 will increase 1.9 percent, to $29,113.

* Only 7 percent of households could afford a median-priced home in Sonoma County at year's end 2005 compared with 12 percent a year ago.

* In 2005 a Sonoma County household needed a minimum income of $152,595 to buy the typical home, based on prevailing interest rates for a 30-year mortgage.

* In 2004, the minimum income needed was $124,650.

(Did you note the per capita income is only: $29,113? Did you note the average wage is $42,171? Did you note that of the new jobs created nearly 60% are paying below that average wage? Did you notice even if they ARE paying the average wage it still is nowhere near the income needed to buy a median priced home? Did you notice that even if you double the average wage it still isn't enough? ok... just checking)

* Adjustable-rate mortgages accounted for 69 percent of loans to buy Sonoma County homes last year and only 31 percent were 30-year, fixed-interest loans - a reversal from just two years earlier.

* Buyers had to increasingly stretch financially to purchase homes. A majority turned to interest-only and other adjustable-rate loans, often making little or no down payment when purchasing homes.

* As interest rates rise, and there are conversions from adjustable rate mortgages to fixed, defaults are likely to rise.

* Default notices are rising, signaling business instability and consumer insolvency.

Percentage of home buyers choosing adjustable-rate mortgages

Sonoma County
2003 - 36.8%
2004 - 59.4%
2005 - 69%

"For Matt White, president of Basin Street Properties, one of the major development companies in the North Bay, the cost of housing is "a very serious problem."'

"This situation cannot be sustained indefinitely, White said. As more businesses move out than move in, California is headed for trouble if something is not done to make housing more affordable, he said."

'"If you are paying 60 percent of your income for your mortgage, you are not sleeping too well at night and what quality of life is that?" White said."

15 Comments:

At 5/13/2006 01:40:00 PM , Anonymous tom stone said...

are you sure that is pixie dust? i'm feeling kind of numb,my head is whirling and i'm getting nauseous.somehow 69 seems a polite percentage for arms...will 69% of buyers get 86'd? i think i'm going to lie down for a few minutes.....what is left of my mind is doing strange things.

 
At 5/13/2006 01:42:00 PM , Blogger Athena said...

well.. that 69% figure did come from the Press Democrat who if they print anything at all they roll it in sugar first... most of the time they just keep silent. Realtors got their tongues.

 
At 5/13/2006 03:43:00 PM , Anonymous tom stone said...

i can not say anything remotely polite about the press democrat.i would't be surprised to learn that the editor molested slugs.

 
At 5/13/2006 07:16:00 PM , Blogger Marinite said...

It's the same story here in Marin. But you already knew that. People's children are forced to live practically out of state now because so few people can truly afford our prices. It is a crime.

It's time for a revolution. The system is broken, the Fed and our government have dropped the ball. It is time to take matters into our own hands.

http://www.boycotthousing.com/home.aspx

 
At 5/13/2006 08:37:00 PM , Anonymous tom stone said...

hi marinite,i heard a professor of constitutional law explicitly call for a revolution on the pat thurston show yesterday...he described what happened to him when he refused to inform on his colleagues and clients...put on all the terrorist watch lists..special clearance from dhs everytime he flies,strip searches etc,george w will be remembered as the man who pissed away an empire faster than any ruler in history...if there is a revolution here it will be by real conservatives and the kind of christians who have not only heard about the new testament,but have read it.btw i was raised as a Kali worshipper,3rd generation wash.

 
At 5/13/2006 11:24:00 PM , Blogger Athena said...

One of my sisters always says how the Morrigan and the Kali make a great team. ;-)

 
At 5/14/2006 08:44:00 AM , Anonymous tom stone said...

i went to a small social gathering last night and conversation turned to a woman who was trying to flip a condo...she wants $350k for a one bedroom condo in ricon valley.there was agreement that top rent for the unit would be $750 a month.she apparently paid 250k k for it,then had a contractor fix it up for another 50k.i pointed out that at 350 k you would lose at least $1700 a month if fully rented,while t bills would give you $17,500 a year income if you invested 350k....which would pay the rent and give you $7500 a year on top.based on income the absolute top price should be 65-70k.2 people left,with tight mouths,the rest agreed or looked thoughtful.athena send me an email at tom@touchstoneloan,com and i will buy you and mv a coffee,we can look respectable,and speak rudely.(honesty is considered rude by most,these days)

 
At 5/14/2006 10:25:00 AM , Blogger Marinite said...

Great story. I wish I had the cajones.

The truth is always considered rude when it is not what others want to hear.

 
At 5/14/2006 09:53:00 PM , Blogger Athena said...

LOL..."Honesty is considered rude these days." bahahaha... you know, I've been rude that way all my life. I know people who will write to me or take me aside AFTER they have heard me say something out loud and thank me for doing so... and of course each time it happens I wonder WHERE does that gene come from that some people have that keeps them from running their mouth? I wish I had that gene sometimes. If I think it- it is usually coming out of my mouth before I can catch it... or even know that I should have caught it before it escaped. I have always admired people who have that ability to know what should be said out loud and what needs not ever be said.

;-)

 
At 5/14/2006 09:54:00 PM , Blogger Athena said...

I love this.... "we can look respectable and speak rudely." bahahaha!!!

 
At 5/15/2006 12:37:00 AM , Blogger moonvalley said...

we can look respectable and speak rudely." bahahaha!!!
hahaha...sounds great. Where in this tiny town?

 
At 5/15/2006 01:12:00 AM , Blogger marin_explorer said...

"Publicity about Petaluma's high housing costs may bring in a few more visitors...It's not going to make anyone go away. It's not going to make locals stop buying homes"

Pure genius. Does she think the locals are stupid?

 
At 5/15/2006 02:42:00 PM , Blogger Athena said...

REskeptic said...
"Publicity about Petaluma's high housing costs may bring in a few more visitors...It's not going to make anyone go away. It's not going to make locals stop buying homes"

Pure genius. Does she think the locals are stupid?


Apparently so.

she is right though... publicity isn't what is going to keep locals from buying homes. After all... Sonoma County residents don't really need the New York Times to tell them when they make $40k a year they can't afford a $500k+ chit box.

They don't need the national press to tell them the area has risen to an unsustainable pricing point.

It indeed is not going to be the press that keeps people from buying houses. It is going to be the fact that the prices are out of whack from what the houses are worth. It is going to be that the prices are out of line with economic fundamentals.

It is going to be that there are very few locals who can afford to buy a house. Only those who make above $150k per year can afford a median priced home. Those folks are few and far between.

 
At 5/15/2006 03:01:00 PM , Anonymous tom stone said...

athena,it is called foot in mouth disease,genetically linked,it is expressed when the bearer is exposed to certain environmental factors such as hypocrital liars and fools of various kinds,good books and ice cream can alleviate the symptoms but there is no cure.

 
At 5/16/2006 09:48:00 AM , Blogger marin_explorer said...

Well, yes...I suppose that was my point; locals already know what's good for them. Apparently people like Ms. Pellegrini just think everyone should buckle down and keep on buying, and that high prices are somehow Petaluma's good economic fortune. For years, Marin (and the greater SFBay) have acted like they're above it all, where excessive personal overhead is regarded as measure of success, all the while their finances are slowly bled away.

Sonoma, if you want to follow the Bay Area, then you have arrived; well done! Welcome to a culture/mindset where no expense should be spared; you need that $1M+ house; your wife needs that cute new Benz convertible; and your children need $20K per annum schools--the alternative is just too horrifying to consider. So gather your like-minded, cultured friends together and toast your new indebtedness to Bay Area culture, as you slide almost inperceptibly towards financial ruin. Cheers!

 

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