Sonoma Housing Bubble

Pulling the cork out of Sonoma's bubbly housing foolishness

Sunday, February 18, 2007

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


At 2/18/2007 04:03:00 PM , Anonymous tom stone said...

Just yesterday I had someone point out to me that negative appreciation was still appreciation,and "that's always a good thing".median price $545k,1% a month loss is -$5,450 per month,plus buy to rent differential of say $1,000 a month,plus opportunity cost.well let's ignore that for's a good time to buy,or sell,hamburgers.

At 2/18/2007 04:10:00 PM , Blogger Athena said...

What an idiot! Yet, I am not shocked by this. Welcome to Sonoma County.

At 2/18/2007 06:44:00 PM , Anonymous tom stone said...

he has lots of company,i spoke to someone a week ago today who paid 600k and change for a fixer upper,5% down and an I/O loan.he is planning to do the work himself and sell in 2 years.when i asked him if he didn't think it was a risky investment,he looked at me in contempt and told me real estate always goes up here.he closed on 2/1.since he is notorious for his temper,and a muscular 250 lbs,i left it at that,i also know 2 real estate brokers who have made offers recently on homes they intend to flip.i am amazed at how many loan and real estate brokers still buy into the idea real estate always goes up,some of them have been around for several cycles???bizarre.

At 2/18/2007 06:53:00 PM , Blogger marin_explorer said...

In Sonoma County prices are down -10.6%
In Sonoma Valley prices are down -11.4%
This is just the beginning.

B..b..but does this mean Sonoma is no longer The New Sausalitoâ„¢ ? :-(

I can almost hear a bone-crunching credit contraction and RE shakedown in the near future.

At 2/18/2007 07:57:00 PM , Anonymous tom stone said...

The credit contraction has started,it is a pipeline...somewhat like your small bowel...contractions start at one end,and ripple the length of the errr pipeline,before bearing fruit,so to speak.who makes "depends " anyway?gotta be a growth stock for the next few years.

At 2/18/2007 10:34:00 PM , Blogger Athena said...

Marin Explorer, :-D I don't know if the memo went out about that yet. I would ask the friend that said it in the first place, but he doesn't seem to be talking to me. :-/

Was it something I said? ;-D

I tell ya', the truth is the new rude.

At 2/19/2007 10:47:00 AM , Blogger Lisa said...

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

Ten years ago banks wouldn't LET you buy a house you couldn't afford. Period. But now with the magic of IO financing, the payment is affordable (for a few years) even though there is a two ton elephant at the end of the ball & chain.

The whole consumer "recovery" since 2001 has been a false one, fueled by easy, massive debts for houses, cars, etc.

How many people think in terms of what they can really afford anymore? And why bother, when the banks made it so easy, so cheap to live beyond your means for a few years?

At 2/20/2007 01:15:00 AM , Blogger Out at the peak said...

10% down and 35% more to go. The next four years will be more and more uncomfortable.

I can imagine my old Santa Rosa house going for about $310K. $560K was the peak. I still think $310K is kind of a rip for that place.

At 2/20/2007 07:24:00 AM , Anonymous tom stone said...

It looks like marinite is shutting down her blog afer a death threat,comments are turned off as well.I will miss that blog,she performed a valuable public service ehen no one else would,at enormous effort,and her reward was a death threat.I can understand both her exhaustion and her decision to take this threat seriously too many marginally sane people bet the house and lost,and now seek someone to blame.Thanks Marinite...kick back in the hot tub with a glass of bubbly and done good.If you reconsider and decide to get a CCW e-mail me and i'll sell you a nice little laser sighted .38,cheap.

At 2/20/2007 12:23:00 PM , Blogger Athena said...

Marinite = He

At 2/20/2007 07:50:00 PM , Anonymous tom stone said...

I HAVE been spending too much time in San Francisco lately.

At 2/20/2007 09:24:00 PM , Blogger Lisa said...

Re Marinite shutting down the blog, I too am very, very sorry to see him go. Maybe he'll return?? That blog was the only voice of sanity in Marin County.

But perhaps it's not surprising, given how expensive it is here, a lot of people have made very, very big bets on RE. Lifetime bets. So I would think some people are getting very, very scared or angry. Or both.

At 2/21/2007 02:48:00 PM , Anonymous marinite said...

Look at the Case-Shiller House price Index for SFO:

At 2/21/2007 05:37:00 PM , Anonymous tom stone said...

Good to see you still posting ,marinite.I made a point of checking your blog regularly because it was factual,low key,and frequently far as being confrontational,is saying "excuse me sir,you fly is down" confrontational?I recall no ad hominem attacks,just an appeal to reason,and a call for honesty and openness in a field where they had nearly disappeared.

At 2/22/2007 07:04:00 AM , Anonymous Anonymous said...

I'm sure someone will take the Marine Real Estate Blog market by the horns and give it a good rip. God knows it needs it. I'd do it if I were not gainfully employed at the moment,just to see all the anger and hate mail poor old Marinite had to endure. I'm sure most of it was from pompous, uneducated Realtors who can't stand the fact that market has slammed their sleazy, greedy fingers inside the proverbial cookie jar. Sonoma is the next best local bubble to rip, so thank you Athena for taking the initiative.

At 2/23/2007 01:45:00 PM , Anonymous Anonymous said...

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..."

Clap your hands really really hard and really really Bee-leeve in fairies, and Tinkerbell will live again!


Become a Seventy-something Michael Jackson, plastic surgery deteriorated with age, standing in front of a mirror in his playroom screaming "I'M YOUNG! I'M YOUNG! I'M YOUNG!"


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