You Shouldn't Buy a House You Can't Afford!!!

I keep seeing reader searches asking for: "house price appreciation in Sonoma County for 2006."

Multiple times a day these searches keep coming up.

So, House price appreciation in Sonoma County for 2006? There was none. Ok?

Click your heels. Tell yourself all you want: "housing prices never go down, never go down, never go down." or "real estate only goes up, only goes up, only goes up, and you can't lose, can't lose, can't lose..." It isn't going to help.

In Sonoma County prices are down -10.6%
In Sonoma Valley prices are down -11.4%

This is just the beginning.

This is not appreciation. It is not even negative appreciation. Appreciation is an assumption you cannot count on. Notice how even the word assumption has an ass in front of it? As in those who assume appreciation is in the bag for housing have their head up theirs.

This is good old fashioned depreciation. As in losing value. As in terrible time to be a loanowner for a depreciating asset that you purchased for more than it was worth.

In other news....
"Living in Sonoma County can mean a trade-off between paying for a roof over your head and saving for retirement. In high-cost areas like Sonoma County, it can be difficult to do both."

"Across the United States, more Americans are banking on rising home values instead of the stock market and savings to pay for their retirement."

'"They think of their houses as a savings account more so than a generation before," said Bruce Dzieza, a Sebastopol financial planner. "It's become more of a commodity, and people have the attitude that real estate will never go down."'

"Only 49 percent of U.S. families held stock in a retirement account or other managed asset account in 2004, down from 52 percent three years earlier, according to the most recent Federal Reserve Survey of Consumer Finances."

"At the same time, more families are buying homes and taking on larger amounts of debt to purchase real estate. The Fed survey found that 69 percent of American families owned a home in 2004, up from 67 percent in the previous survey."

Make note: the increase from the previous survey has many more loan owners than home owners.

"But consider that stocks have outgained increases in home values in Sonoma County, even accounting for the latest housing surge. Homes also are not liquid assets that can be easily sold to generate cash."

"Still, the recent housing downturn and declining property values doesn't appear to have lowered Sonoma County residents' expectations that homes are the key to financial stability in retirement."

'"The majority of clients we get, that's their biggest asset. And they don't have a lot for retirement," said Dale DeGennaro, president of the North Bay Chapter of the California Association of Mortgage Brokers."

'"Increasingly, the aim of paying down a mortgage is fading as more homeowners count on the market to generate gains in value. This reflects unflagging confidence in housing as an investment."'

'"If prices decline, you could owe more on a home than it is worth by counting on the market to build value rather than paying down a loan's principal balance."'

"Better to both pay down a mortgage and invest in a retirement account."Your home is not a brokerage account. It's a cushion; it's a reserve," Dzieza said."

"The price of a typical home in Sonoma County has climbed 208 percent since 1990, rising from $190,000 to $585,000 the end of 2006."

So in a County where the typical home price due to rampant speculation, is 10 times the typical income, how many FB's will all need to live in the same house in order to have an icecube's chance in hell of paying it off?

"When buying a home, aim for what you can afford and resist stretching too far financially. A majority of buyers in recent years, however, have taken out interest-only or minimum payment option mortgages in order to qualify for loans to purchase homes given soaring prices. While they have fallen out of favor, Dzieza still recommends 30-year fixed interest loans, which also include an interest-only option now."

Maybe take a look around Montini Ranch subdivision in Sonoma and count that there are typically 5 cars in every driveway. The ones with no cars in the driveway are the dogs that haven't sold because they are WAY overpriced and yet geared towards the suburban family to buy. Umm... better check the economic data for this county, the typical suburban family doesn't make enough to afford these $800-$900k overpriced chitboxes. Of those that gambled and are now the proud owners of a Jumbo Loan or two, I bet maybe 1 family on the whole block can actually afford the payments when their loans reset.

"I think that minimal forced savings of a principal payment is a good thing. Because we hate to see clients, especially in this market, owe more than a home's worth. It's happening," he said. "You shouldn't buy a house you can't afford."

Speaking of not buying stuff you can't afford... Video here