Sonoma Housing Bubble

Pulling the cork out of Sonoma's bubbly housing foolishness

Wednesday, January 03, 2007

Welcome to the Internet Sonoma!

Looks like Sonoma is slowly waking up to the internet. There aren't a lot of listings yet. The newspaper appears to be the main medium still, but those trying to sell and rent properties are starting to use sites like Craig's List to attract Greater Fools and renters.

One thing they haven't come to terms with is that the buyer/renter are the ones with the money they want- and they aren't yet thinking like the buyers/renters in order to attract that money. Smells to me like most of the for sale and for rent ads are still being written by those sipping the "everyone wants to live here" kool-aid. Reality check just up ahead....

Montini development is looking to recruit First Time Greater Fools aspiring to be FBs. From the looks of the listing they have an "income restricted" property they are now hawking online. (no picture of course. Why would they need a picture? Of course the potential buyer would know how lucky they are to even be viewing an ad on craigslist and of course they already want to live here, so no picture is necessary)

Brand New
2/2 near downtown Sonoma (sonoma)
This is an unbeatable opportunity for a first time homebuyer. This is a
brand new 2 bedroom 1.5 bathroom single family residential home in a new
subdivision in Sonoma. Only 5 blocks from the Square! This is for first time
homebuyers only. Certain income restrictions apply. This is the last Below
Market Rate (BMR) home available in a new subdivision. Call today to find out

last below market rate home? Do a little math... what income would a person need to have in order to qualify for traditional financing + 20% down and payments + taxes totaling no more than 33% of the buyer's income? Then maybe one of our reader/researchers can give Montini a jingle and find out just what that income requirement is to buy this place. (please post the income requirements in the comments) ;-)

This next one hasn't woken up from having bubble dreams yet... (no picture... you all know why pictures are not necessary.)

Huge Price
$615000 Custom Built Four Bedrooms 2.5

New Home on a very quite street behind the Sonoma Mission
Inn. Custom tile work in all baths and kitchen. All new stainless steel
appliances. Low maintenance level lot. One car attached garage. House appraised
in June for $655000. Buy at the low end of the market as prices will go up.
(bwahahahahaha!!!!!) Good grief- this one is in an area where they should be offering the buyer money to even consider living there! Huge Price Reduction!!! (bwahahahahaha) Prices will go up! (bwahahahahaha) Buy at the low end of the market!!! (bwahahahahaha) Oh honey, the bottom is so far down you can't even see it yet. 5-10% reductions are nothing but piss in the rain. Heck, even 15-20% reductions off specuvestor bubblemania prices should be printed out and used as toilet paper.

Take in these numbers:

Average Price of Sonoma Valley Home w/% increases YOY
1998 $323,199 ---
1999 $363,568 12.5%
2000 $466,036 28.2%
2001 $567,809 21.8%
2002 $521,079 -8.2%
2003 $624,404 19.8%
2004 $705,801 13.0%
2005 $884,407 25.3%

Median Price of Sonoma Valley Home w/% increases YOY
1998 $250,000 ---
1999 $283,500 13.4%
2000 $345,000 21.7%
2001 $410,000 18.8%
2002 $440,000 7.3%
2003 $510,000 15.9%
2004 $583,000 14.3%
2005 $679,000 16.5%

Keep in mind that historically Real Estate increases 1-2% above inflation. 1998-2000 the gains were due to the tech boom and the many telecom equipment companies that relocated to Sonoma County and brought with them employees that had sold houses in the greater Bay Area that were priced well above the average and median prices in Sonoma County.

Houses in Silicon Valley and SF were worth more because they both are economic hubs, centers of excellence for high paying industries. Their population is more diverse and their median houshold incomes are higher than that of Sonoma County: $53,076. Average wage per job in Sonoma County: $36596. Median income in Silicon Valley: $81,717. San Francisco Average annual household income: $93,900.

There is a wives tale that in Sonoma County we have a LOT of commuters with good jobs in SF and Silicon Valley... guess what? If it were true that there were A LOT it would be reflective in our average household income.

Look Again:

SF Average: $93,900
Silicon Valley Median: $81,717 (average wasn't listed)
Sonoma County Median: $53,076 with the average wage per job being $36,596

Look at the Industries providing employment in Sonoma County:
Educational,health and social services (18.6%),
Manufacturing (12.7%),
Retail trade (11.9%),
Professional,scientific,management,administrative,and waste management services (10.8%)

Where are those high paying jobs?

These years of extraordinary property value appreciation are NOT based on real economic gains or fundamentals. Incomes did not grow, industries have not taken root here and paying the population more. The increase in appreciation was a temporary reflection of the short lived dip into the technology game and pure mania fueled by Flippers, Speculators and Wannabes who are stuck on stupid and believed Debt = Wealth.

In the late 90s Sonoma County was the beneficiary of a temporary influx of new residents that were house rich from selling houses with significantly more value due to their proximity to better jobs and a population that makes more money.

Then the tech boom came to an explosive end and many of those tech companies laid off thousands of employees. Many of those not laid off were relocated to corporate centers or cheaper hubs, and thousands of jobs were outsourced to India. The technology workers that were laid off moved, or commute into tech hubs. There are some residents with high paying jobs that live here, but not a LOT.

* 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.

*By October 2006 The county has lost 3,100 jobs

* 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.

* 58% of new jobs between 2003 and 2005 paid below the average wage.

Percentage of Sonoma County home buyers choosing exotic financing (Interest Only, ARMs, Negative Amortizing Loans)

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

Anyone want to SWAG the 2006 number? My SWAG = 81%

The rest of the record appreciation in home values were due to Alan Greenspan trying to keep the tech bubble crapping the bed from stinking up the economy as a whole.

The Fed injected a major cash infusion by bottoming out interest rates and the Banks zeroing out lending standards to allow for anyone who could fog a mirror to get a lifetime of debt. Poof, big helicopter drops of cash, and the risk is moved off the central banks and onto the backs of the greatest fools who will be the biggest bag holders of this crash. This time the Piper is calling to be paid. What goes up that is not sustainable must come down. Look out below because we will see a reversion to the mean. Soon we will start paying for the past

This one has been on previous price reduced lists...Looks like its been a real goldmine for this builder (sarcasm off)

$650000 investors goldmine (sonoma)
compleatly restored 3bd 21/2 bath + 1 bd 1 bath everything new from ground up on restored house only thing left roughcut redwood fraiming and oak floors this is a well
built home 1 blk from golf granny or rental detached deck fountain whirlpool tub
owner willing to nogotiate any changes that might help the house suit the buyer
715 boyes blvd at arnold

(from 4/2006 price reduced list)
715 BOYES BLVD, Sonoma, CA 95476
Price Reduced: 11/14/05 -- $879,000 to $849,000
Price Reduced: 02/08/06 -- $849,000 to $799,000
Days on Market: 224
Total Reduction: 80k round about 9.1%
Sale History 01/26/2001: $200,000
this one was relisted at $799,000 on 03/06/06 trying to make it look like it too hasn't been sitting...

$725000 NOT on MLS (sonoma)
This beauty is near the Historic Plaza in beautiful Sonoma, CA--but it's not on MLS. You can go to my website ...

Not on MLS? So how many do you suppose are being kept off the MLS in order to give the illusion that the number of houses for sale are pretty darn close to the same number that sold last year? I know that there are listings where they are indeed for sale but not bearing the scourge of the For Sale sign in the yard. Seems clear to me that anyone who doesn't do enough research to see the reality of the unreal estate market in Sonoma truly deserves the tile of Greater Fool and should get a t-shirt at the closing of their albatross with windows.

The For Rent story looks like it may get interesting real soon. Due to the predictable phenomenon of bagholders following the market down and not being able to find a buyer for their overpriced chitbox they have started to turn to renting.

From reading the ads on Craig's list and doing a little research seems Sonoma is not pet friendly. Some stating emphatically, "ABSOLUTELY NO PETS!!!" There seems to be a little schizophrenia in terms of move-in requirements as well. Some demand that only those with excellent credit need apply and you must pay for the pleasure of having Joe Sixpack ding your credit report with an inquiry. Though there are some that say: "Move in today! No credit check, no references needed!"

The rental market looks to be divided into a few buckets:
1. long time rental properties -most of which have not been updated at all in the last 20-30 years. Similar characteristics are the shabby exteriors, shabby interiors, and only the bare minimum of TLC is detectable on the nicest of the shabby rentals.

2. FBs paying two mortgages and upgrading to a "bigger better" property before selling their previous residence. Many of these properties were on the market and even the price reduced list for the better part of a year. They have been chasing the market down, and now that it is sinking in that they can't unload for their wishing price they are trying to wait out the market and rent out the property. Unfortunately, because these properties were at some point their primary residence and they put just a tad bit of TLC into them they are over-priced as rentals. FBs are expecting to be able to cover their mortgage costs in the rent. Unfortunately, it looks like they didn't buy a house for a price that it would pencil out as a rental. tsk tsk tsk...

3. Flippers who bought at bubble prices and did the cliche granite counters, tile etc... and found their fantasy cash cow they intended to fix and flip is now an alligator that has flipped on them and the carrying costs are killing them. These too are way overpriced as rentals.

Dear Flippers,

Make a note to self... next time you buy property when the shoeshine boy is bidding against you, turn and RUN. The rule for investing to make money is Buy Low, Sell High. Real Estate is not a liquid investment. It is best if you take into account the actual market and buy property that you can afford, or that pencils and you can rent out and cover the costs. Anything more than that and you are taking a loss. Write that down.

Did a driveby of some of these properties and looked up the available addresses from these listings and the property management lists and IT rental listings on Zillow to see when the properties were purchased...

24 out of 30 zillow searches netted properties bought at bubble prices. I stopped searching after that.

Craig's list postings
Displaying: 1 - 57

Jan- 3 $1985 Craftsman country home in Glen Ellen
Jan- 3 $875 Detached Studio Cottage with private yard
Jan- 3 $1750 / 3br - GREAT LOCATION!!! Nice sunny house ready to move in!!
Jan- 2 $950 / 2br - Newly Remodeled Sonoma Apt. With Laundry Room Carport Section 8 O.K. pic
Jan- 2 $900 / 2br - Sonoma Apt. With Porch - Laundry Room - Carport -Section 8 O.K. (sonoma) pic
Jan- 2 $1200 / 2br - 2 bedroom, 2 bathroom CONDO ready to move-in
Jan- 2 $2000 / 4br - 4 BR 2 BA HOUSE "EVERYTHING NEW"
Jan- 2 $1325 / 2br - Great Deal! 2 bedroom 2 bathroom duplex - READY TO MOVE IN TODAY!!! pic
Jan- 2 $1150 / 2br - Duplex pic
Jan- 2 $3000 Sonoma!!! Amazing 3 Bedroom East Side Home for Rent!!! (sonoma)
Jan- 2 $1450 / 2br - for rent
Jan- 2 $1300 / 2br - Spacious 2 Bed/2 Bath Apartment in Downtown Sonoma!
Dec-31 $1275 / 2br - Beautiful newer duplex Great Location pic
Dec-30 $1600 / 2br - Pristine 2B/2B Home in beautiful Chantarelle (Adult 55+) pic
Dec-30 $1850 / 4br - 4 bed 2 bath 1/3 acer. river runs through it pic
Dec-30 $750 / 1br - Apartment in Boyes Hot Springs
Dec-29 $3200 / 3br - Grand contemporary house in East Sonoma on 1 acre
Dec-29 $1700 / 3br - Clean House walking distance from Sonoma Square
Dec-29 $1550 / 3br - house for rent pic
Dec-29 $1900 / 3br - Executive Sonoma Hideaway pic
Dec-29 $1000 / 2br - Apartment For Rent :: pic
Dec-29 $950 / 1br - Amazing Studio with Attached Cottage
Dec-29 $950 / 1br - Huge Alcove Studio with Gigantic Covered Balcony and View!
Dec-29 $3000 / 3br - Sonoma!!! Amazing 3 Bedroom East Side Home for Rent!!! pic
Dec-29 $1000 Peaceful Cottage Fully Furnished. Available Jan. 10 pic
Dec-29 $1200 / 2br - CUTE SONOMA HOME pic
Dec-28 $1195 / 2br - Charming 2 bedroom in Sonoma pic
Dec-28 $1600 / 3br - Home on Spacious Lot pic
Dec-28 $2200 / 4br - Really nice spacious house with HUGE back yard.. pic
Dec-28 $1250 / 2br - LARGE UNIT CLOSE TO TOWN pic
Dec-28 $1260 / 3br - Price reduced in Sonoma!
Dec-28 $15000 / 6br - Renovated historic 10-acre Napa/Sonoma farmhouse estate img
Dec-27 $2600 / 4br - Open House in Kenwood this Saturday pic
Dec-27 $4000 / 3br - Large Private Home w/pool, 2 horse pastures and MORE! pic
Dec-27 $2000 / 5br - Large home with lots of good stuff...
Dec-27 $1800 / 4br - Beautiful home built by the owner, very nice!!
Dec-27 $2800 / 3br - Beautiful, luxurious, gourmet, NEW Townhouse in downtown Sonoma...
Dec-27 $2800 / 3br - All new 2 story house near Armstrong Estates...
Dec-27 $2600 / 3br - Lovely EASTSIDE home in great location...
Dec-27 $2300 / 3br - Very nice house on the EASTSIDE of Sonoma..
Dec-27 $2000 / 3br - Very nice, new home in a desirable location..
Dec-27 $1950 / 3br - Newer home at the end of quiet, private driveway...
Dec-27 $1800 / 3br - Very new and clean house in Sonoma Greens...
Dec-27 $1800 / 3br - Nice big house in a great location in Sonoma...
Dec-27 $1800 / 3br - Very, nice LARGE house in 55+ community...
Dec-27 $1500 / 3br - Bedroom; 1 bath house for rent in Sonoma pic
Dec-27 $1700 / 3br - BIG house with large rooms and extra bonus room...
Dec-27 $1250 / 2br - HALF A MONTHS RENT FREE!!!!!
Dec-27 $1200 / 2br - Nice upstairs duplex unit for rent in Sonoma...
Dec-27 $1025 / 2br - Great downstairs apartment unit close to downtown..
Dec-27 $900 / 1br - Spacious older unit for rent in Sonoma!!
Dec-27 $1100 / 1br - Cute 1 bedroom home in country setting...READY TO MOVE-IN TODAY!!! pic
Dec-27 $900 / 1br - Need a place by January 15th in Sonoma? Look no further!!!
Dec-27 $795 / 1br - MOVE-IN TODAY!!! 1 bedroom apartment, newly remodeled for you!
$1800 3br- 2.5 bath , 2 garage NEWER HOUSE 1996 (short or long term ok)
$1795 / 3br - 3 Bathrooms Trun Key House (Newer Home in Great Downtown Area)

First the Internet, next perhaps our sleepy County and towns within it will wake up to reality. Here is a little taste of it from Christopher Thornberg.

"This year is predicted to be a bad one for those either looking to buy or sell a home in California. Construction, sales and prices will keep plunging, according to Chris Thornberg of Beacon Economics."

'"I am extremely negative about 2007," Thornberg said. "I see foreclosures going up in 2007. I think prices are definitely not going to bottom out. I think prices will continue to go down slowly."'

"In fact, Thornberg sees the entire California economy for 2007 in a negative light. When asked why, he said "the state is in a completely unsustainable situation."'

“Consumers cannot continue to spend more than they earn," he said.

"Thornberg said those in the most trouble are newer home owners whose mortgages will re-set this year. The higher interest rates will mean larger monthly payments for many borrowers."

'"There are a lot of people out there who are in trouble, who were promised that real estate could be a no-lose investment."'

"It seems like Sonoma County is one of the weakest economies in the Bay Area. There's hardly any job growth to speak of. That's essentially the basic building block of the economy," Steve Cochrane, an analyst with Moody's said."

"Home prices fell more sharply in Sonoma County last month than anywhere else in the Bay Area, except Solano County."

"Steve Cochrane, who tracks Sonoma County's economy, said he wasn't surprised by Sonoma County's drop."

'"I've always felt the Sonoma County housing market was at fairly considerable risk," he said."


At 1/04/2007 05:13:00 PM , Anonymous tom stone said...

Athena,lovely stuff...I'd like to mention again that many of the homes built in the last few years are not only poorly designed,but so badly built that many won't last 15 years,let alone 30..oh you got a 50 year loan??? the one next to where i used to live on bllomfield road is going to be about 5000 sq ft,has OSB on the exterior walls,which is sagging due to having been soaked by rain for several weeks...once they seal it up it should be just fine for several months,and then the lawyers will get a nice payday.

At 1/04/2007 05:28:00 PM , Blogger Athena said...

Take pictures Tom!!! Send them in and we will give it a little exposure.

At 1/05/2007 11:51:00 AM , Anonymous tom stone said...

Ok,check your email re 660 e mac.


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