Sonoma Housing Bubble

Pulling the cork out of Sonoma's bubbly housing foolishness

Thursday, May 11, 2006

NYTimes & Forbes Expose Sonoma County


Sonoma County ... apparently not everyone wants to live or work here. Those who do, will find the area unaffordable. We are currently ranked 3rd most unaffordable in the nation.

SANTA ROSA

"Just four years after it was No. 2 on Forbes magazine's annual list of the best places in the United States to start a business or relocate for a new job, Sonoma County fell this year to No. 182."

"Sonoma County would not even have made the list this year except that Forbes expanded it from 150 places to 200 this year."

"The county's ranking was hurt by low showings in several of the nine categories used to judge the business climate. Especially negative were the cost of living, based mainly on housing, utilities and transportation, and the cost of doing business, based on labor, energy, taxes and office space. The county's best showings were in its crime rate and in culture and leisure."

"California had the worst showing of all states, mainly because of "runaway business costs," Forbes said."

"According to a Monday New York Times article citing data from Moody's economy.com and the U.S. Census, the Santa Rosa-Petaluma area is the third least affordable region nationwide. The analysis ranked areas based on the percentage of household income spent on mortgage payments."

"Santa Rosa-Petaluma isn't the only area in California that is highly unaffordable, according to the article. In fact, each of the top 11 highest mortgage-rate-to-income areas were in the state."

"Although the New York Times article did not give specifics about exactly how difficult it is to afford to live here, a similar report released in December by the National Association of Home Builders and Wells Fargo ranked the area as the 17th least affordable in the nation."

"The high unaffordability rating was no surprise to John Records, executive director of the Committee on the Shelterless."

'"I had known for a long time that it was high, but I was shocked to find it reported on a national basis," he said."

The article also says not everyone agrees with the information reported by the New York Times. A real estate broker is quoted as saying something along the lines of the area is affordable and the real problem was just not enough houses on the market to buy. The broker said that usually there are about 125 homes for sale and now there are 185. Thus her position that houses ARE affordable.

Honey, let me be the first to clue you in to a minor detail...

Unaffordability is not calculated based on the number of houses on the market. It is determined by comparing the PRICE of a house and the INCOME required to purchase said house, be it 1 on the market or 185 on the market.

Let's review:

First of all, in Sonoma County high-paying jobs are not plentiful, and many of the new jobs pay less than the average wage.

Second, there is a disparity between the competency of the available workforce and the specific skills required for many of the new jobs.

And finally, the economy is not firing on all cylinders yet according to a report prepared for the Sonoma County Economic Development Board by Economy.com.

* 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.

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

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

* Per-capita income fell 2.6 percent in 2005.

* 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.

* 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)



* 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.

* 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.

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

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

Percentage of home buyers choosing adjustable-rate mortgages
(most likely chosen BECAUSE of the prices being out of whack from incomes)

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

15 Comments:

At 5/11/2006 11:48:00 AM , Blogger Marinite said...

"Just four years after it was No. 2 on Forbes magazine's annual list of the best places in the United States to start a business or relocate for a new job, Sonoma County fell this year to No. 182."

Wow! If everyone wants to live there I guess no one wants to work there.

 
At 5/11/2006 11:56:00 AM , Blogger Athena said...

right... 4 years ago they were just coming off the high of employment peaking, new tech companies having moved to the area, affordable housing prices where you could pick up a nice 3bd 2ba sfr for under $300k... and I am sure the Forbes data wasn't from 2002 numbers but from 2001 when it was all good in Sonoma County. People were high on their new found attractiveness.

Whoops... then the dot.bom happened and people became aware of it and had no jobs and Greenspan printed free money and people hedged it into property... then the County set about self destructing and pricing themselves out of being an area that companies will move to and do business. The only companies growing are the ones who can use the population with lack of education and training willing to work for peanuts in the service industry.

But... What does the NY Times know? What does Forbes know? They don't know... everyone loves Sonoma County and everyone wants to live here. (click your heels three times when you say it. It won't make it true, but it might make you feel better)

 
At 5/11/2006 12:51:00 PM , Blogger Marinite said...

That's right. In order to justify the ludicrous house pricing they have to make up BS like "well, they aren't making anymore land you know", "it's pretty", "everyone wants to live here" (no, everyone wanted to work here at one time and now everyone who wanted to work here is trapped), "we're close to wine country", "we're near the ocean". Whatever. All those things were just as true before the bubble as now so that premium has already been factored it.

 
At 5/11/2006 12:53:00 PM , Blogger sf jack said...

"make the stupid people shut up"

I can appreciate that sentiment.

Great stuff here, athena.

 
At 5/11/2006 02:54:00 PM , Blogger moonvalley said...

great article. I think I'll print it out and give it to my ex neighbor before he sinks any money into an overpriced chitbox.

 
At 5/11/2006 02:57:00 PM , Anonymous tom stone said...

i was reading an appraisal for a recent refi this morning,average tract house,average neighborhood in rohnert park,average quality,some upgrades (not recent)and noticed that the appraiser had also used the income approach to value and showed $1,700 a month as market rent.she also researched market(actual) rents on 5 recent sales of comparable home and gave the gross monthly rental multiplier for the area as a range.appraisers just DO NOT use the income approach here and haven't for years...lenders and sane people make strange sounds when they see the numbers.here it is 365 to 420 times the monthly rent.i have a 2005 appraisal textbook that discusses this,harrison's,it is the standard work...they give an example of a better home than this (a bit) in a better neighborhood (a bit) and do not mention anything above a gmrm of 140...which would be a property in the best part of tiburon in perfect shape.2 homes on my way to work have had their listings expire,a third is going to its 4th broker.

 
At 5/11/2006 03:14:00 PM , Blogger Athena said...

Marinite- yup... companies wanted to move here when the housing was affordable and an engineer could buy a $300k sfr... the reason the tech companies moved there was BECAUSE of that. Competition for recruitment was too fierce in the Silly Valley where houses were double the price as Sonoma County. They also figured it would be a good retention tool in that once their employees had moved there, they wouldn't likely be checking out the greener grass of the other companies trying to recruit them because they would require another relocation. It was very smart.

All the way up until the dot.bom crash and the bottom falling out of telecom. Many of those jobs went away, companies folded, others just prior to the bust were acquired by the very guys they moved away from who thus trimmed the ranks and moved most jobs back to the Silly Valley... and left skeleton crews in Sonoma County only if it was to their advantage to do so.

SO... there WAS a time when people DID want to move here and live here because of the whole package. The opportunity to not have to work night and day to afford a mortgage payment was a huge draw. Now our prices are right in line with all the major tech center cities... but oops... we don't have those kind of jobs. We don't have any alternative high paying jobs. Sonoma County is a blue collar and service industry economy. There is no draw for people who can actually afford to buy the over-priced chitboxes we are peddling. If you can afford a $600k+ home- then you are likely going to buy one right near the company where you work so you can have more time at home instead of commuting.

People no longer need to move to Sonoma County and brave the commute. Some used to do that when the prices were more in line with their real value. LOL... well I still commute, but it isn't because of the prices.

Thanks SFJack and MV! :-)

Tom... wow! so where were all these appraisers going by the book in the last 5 years?

and I find it hard to believe that the rents for average RohnertBama tract homes would be $1700. Maybe a 4 bedroom nice house with a pool over in M section... but my brother and some friends live in the regular tract homes and 3-4 bedrooms and none of them pay over $1300. So someone is fudging the rents I think...

 
At 5/11/2006 03:32:00 PM , Blogger moonvalley said...

my sister,her husband and kids live in RP, I couldn't imagine anyone paying more than 1300 a month ot live there. Also, having just recently moved to a new rental place I've found prices have definitely dropped. % years ago when we really started going back and forth between here and our Santa Monica place we paid about 600 dollars a month more for a smaller house than the new one we're in. Also our old, dearly departed landlord cut the rent on the old place last year. I am just jonesing to pick up something tasty when the prices drop, and the more of these stories I see the more certain I am that it's going to happen.
We're lucky in that we work at home and therefore could live virtually anywhere. Sonoma, where all of my family lives suits us just fine.

 
At 5/11/2006 03:42:00 PM , Anonymous tom stone said...

thank you mv,the rent figures would come from property managers and re brokers who have an interest in higher figures.at 1300/month those are 175k to 200k homes,tops.oh,i forgot,all those chinese billionaires retiring in rp drive up the prices.

 
At 5/11/2006 03:47:00 PM , Blogger Athena said...

LOL... right. I have friends who just moved out of their 4 bdrm in RP into a "nicer" place in RP and they went from paying $1100 to $1300 for a nicer place, in a nicer hood with a pool. So I think Tom is right... the fudged numbers are coming from brokers and agents who want to see the prices go up. In my opinion they can't go anywhere, but that won't keep people from trying.

MV... I hear you! I think also after looking at the data that our day will come. We will be able to buy cute places we like and feel good about what we pay for them too!

I can work from anywhere too... though I love my team so I like to see them often and go into the office. Today though I needed some freedom from them so some actual work could get done and am enjoying a quiet day at home.

 
At 5/11/2006 11:18:00 PM , Blogger moonvalley said...

We're currently renting an 850k place for a fraction of what we'd be paying if we'd bought it. I've owned and I've rented and renting is a lot easier.
Also, as has been pointed out here many times, rents have to be at a price that makes sense for what the wages of a place are. You can't get a no money down lease.

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

I agree. I've had the house I own rented out for the past 8 years. I just didn't want the responsibility of assuming all the costs. Fortunately, it was bought low enough that it takes care of itself. But I am in no hurry to financially strap myself and be married to my house.

When the cost of owning again is not much more than what my cash outlay every month is now... then I will buy something. Otherwise I think it is just crazy talk to indenture yourself to a lifetime of debt. makes for people who are crabby a lot too...

 
At 5/11/2006 11:26:00 PM , Blogger Athena said...

MV... did that two story on W. Spain sell or did they take it off the market?

I saw some search engine reports with people googling the address and finding this blog...

my daughter pointed out that if it sold... why didn't they leave the sign up saying it was sold?

They like the advertising usually... same thing with that other one a couple doors down... the sign was up and then it was down with no sold sign... What's the word on the grapevine?

 
At 5/12/2006 10:43:00 AM , Blogger moonvalley said...

all I know about the W Spain place, (the Sotheby's one) is I saw Sold, Sale Pending, then nothing. I drive bty the place everyday on my way to Sonoma Market shopping. Unless I see a tent out there I'm gonna assume it didn't sell.

 
At 8/30/2006 12:52:00 PM , Anonymous Anonymous said...

Now our prices are right in line with all the major tech center cities... but oops... we don't have those kind of jobs. We don't have any alternative high paying jobs. Sonoma County is a blue collar and service industry economy.

Service Based Economy (TM)?

Isn't that where the only jobs that exist are:
1) Serving each other hamburgers
2) Suing each other
3) Trading hot tips on condo flips?

I remember a TV show that was set in a Totally Service Based Economy. It was called Max Headroom.

 

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