Sonoma Housing Bubble

Pulling the cork out of Sonoma's bubbly housing foolishness

Monday, March 05, 2007

Sonoma County Outlook 2007


A SHB reader sent in this most enlightening graph regarding housing affordability here in Sonoma County.

Reader quote:"Wow! Doctors cannot even qualify for a conventional mortgage to buy a home in Sonoma County at the Medium price point! Doctors! Stunning!"

Also sent in was an Economic Development Report on Sonoma County Economic Indicators for 2007. (pdf warning)Interesting quotes from the report below:

"Sonoma County faces several challenges. The median price of a home is still unaffordable for more than half of Sonoma County families."

"Job growth has also slowed and high energy costs have contributed to a cost of doing business that is 10 percent higher than the U.S. average."

"And new issues will continue to emerge in the future. For example, Sonoma County will soon face the challenge of managing a limited supply of water for an increasing population and the reality of exporting waste."

"In December 2005, only seven percent of households in Sonoma County could afford the median-priced home."

"Moody’s Economy.com also estimates that the median income-earning household could only afford to buy a house priced at 46% of the median sales price in the second quarter of 2006."

"According to the Housing Affordability Index, which compares county-specific data on income to home prices, Sonoma County is the second least affordable county in the state, trailing only Santa Barbara."

"The minimum family income needed to purchase a medianpriced home in Sonoma County is $133,311, based on an average effective mortgage interest rate of 6.33 percent and assuming a 20 percent downpayment.

"The approximate median family income in Sonoma County in 2005 was $58,330."

Why is it Important?

"A lack of affordable housing can be a barrier to a strong, reliable economy. High relative housing prices may influence location decisions of businesses. A shortage of affordable housing (particularly for first-time buyers) may discourage young families from moving to Sonoma County or staying here after graduating from local colleges and universities. Sonoma County workers settling outside the county can result in longer commutes, increased traffic congestion and pollution, decreased productivity, and diminished quality of life."

Economy
"Sonoma County ranked fourth among the comparison regions for 2005. Sonoma County fared well in all categories except job growth. More recent data, at the time of this writing, suggests that job growth has continued to slow through 2006 as well."

"It should be noted that the comparison counties are among the wealthiest in California and that income inequality and increasing economic pressure on low- and middle-income families still remain issues confronting Sonoma County."

"One of the major challenges facing Sonoma County’s economy, the data suggests, is job growth. Over the course of the year, Sonoma County only experienced a 0.4% increase in total jobs, while Napa and Santa Barbara both posted 3.3% increases."

"Forbes magazine’s “Best Places for Business” ranking evaluates selected regions with stronger business climates across the country with a variety of characteristics the magazine believes are most important to business success. The Forbes ranking for Sonoma County has usually been high, peaking at second in the nation in 2002."

"However, recently the ranking has fallen dramatically to 182 out of 200 in the nation. This descent is most likely due to a combination of the rapidly increasing cost of living, a slowing economy in comparison to the late 1990s."

"The poverty rate in Sonoma County can be somewhat deceptive, however, as the official poverty calculation does not include an adjustment for varying costs of living between regions. Thus, a family earning a given income in Sonoma County is assumed to be as well off as a family earning that income anywhere else in the United States, despite the fact that the costs of living are well above average in Sonoma County. Therefore, the “real” poverty rate is likely significantly higher than official statistics indicate."

"The two largest sectors in Sonoma County are manufacturing and retail trade, which each employing just under 13% of the County workforce. Manufacturing, which includes wine and food production, is the county’s single largest sector."

"From 1995 - 2005, the Construction sector added 6,700 jobs, increasing 88% in size. The recent downturn in the real estate market, however, has diminished some of these payroll gains."

"The professional and business services sector grew 44%, and leisure and hospitality grew 33%. Some relatively high wage sectors, such as manufacturing, have been declining for nearly five years."

"Continuing population growth has yet to be matched by an increase in the capacity of the transportation system, although an expansion project for Highway 101 has begun. Consequently, Sonoma County freeways experience greater levels of utilization and residents have longer commutes than comparable counties."

"In fact, the average Sonoma County commute is 25% longer than the average Santa Barbara commute, and Sonoma County freeways carry nearly 50% more cars per lane-mile than San Luis Obispo freeways."

"From 1998 to 2003, the population of Sonoma County increased 6%, adding 27,000 new residents. Yet the county freeways added fewer than four lane-miles of roadway, an
increase of less than one percent."

"In 2004, Sonoma County consumed 98,474 acre-feet of water. This usage is a 5.6% increase over 2003, and more than an 11% increase over 1996 water use of 88,155 acrefeet. More than 38% of the County’s water supply comes from sources other than the Russian River."

10 Comments:

At 3/06/2007 01:42:00 AM , Anonymous Waiting For Sanity said...

Hey Athena,

I'm a refugee from Marinite's blog.
I miss his excellent offerings.
He has always been fair and reasonable.

He gave me insight when all the media was saying "jump in before it's too late!".

Shame on the Marin "Independent" Journal!
Shame on KRON etc.

I didn't jump in and I have been saving my dimes.

Athena, thanks for your work on this.

Marinite, thanks for all of your hard work too.

Sorry for the "Off Topic", I just wanted to thank you both.

I'm waiting for a sane housing market.

I will buy when the asking prices are in accord with the fundamentals.

 
At 3/06/2007 06:53:00 AM , Anonymous tom stone said...

Thank you,athena.no surprises here for me.one driver for the high end in west county has been retirees selling their home and bringing a pile of cash.i suspect that to ease up a bit with the changes in the market.also i think that economic report doesn't take into account the influence of real estate and constructon on our economy in a realistic way.

 
At 3/06/2007 11:36:00 AM , Blogger Athena said...

WFS- you are welcome here anytime and no reference to Marinite shall ever be deemed off topic. As far as I'm concerned we can talk about him every day, all day until he comes back.

Tom- well, no, they didn't want to really talk about the impact of the housing industry on the overall economy. They tried their best all over the report to make things sound not all that bad, so I had to pick and choose from the actual facts as opposed to the cheerleader analysis in the report. They did do a good job with that 88% increase in the housing construction related jobs though... and if you do the math...

* look at the breakdown of jobs here,

* and the median income

* and the fact that Sonoma County is 10% higher in cost to do business than anywhere else in the US

* and the fact that high paying jobs continue to leave,

* and even the slim pickens of low paying jobs have seen only meager job growth,

* and we are the second most unaffordable place to live trailing only Santa Barbara...

that should start the death rattle for those living in their delusional bubble...

 
At 3/06/2007 12:55:00 PM , Blogger hemorrhoidforhousing said...

It appears the "death threat" worked. Marinite looks to have left the building. I enjoyed reading his blog. It's too bad. It looks as though the threat may not have killed Marinite but it killed the blog. Comments turned off and no posts since 2/19. Sigh

 
At 3/06/2007 04:26:00 PM , Anonymous Anonymous said...

Athena

Quick question -- what is the median house price on which the $133k salary is based.

Bob

 
At 3/06/2007 04:34:00 PM , Blogger Athena said...

Looks like the report is going with what CAR claims is the median for Sonoma County: $545,000

Additionally, using this figure and comparing it to the incomes in Sonoma County:

The minimum family income needed to purchase a medianpriced
home in Sonoma County is $133,311, based on an average effective mortgage interest rate of 6.33 percent and assuming a 20 percent downpayment.

The approximate median family income in Sonoma County in 2005 was
$58,330.

Where is all this MONEY that lives here hmm? This isn't even the average income for an individual... this is FAMILY median income.

 
At 3/07/2007 01:49:00 AM , Blogger Slinky said...

It's no surprise that your average teacher can't afford to buy property, but it's just mind-blowing that your average physician can't afford property either.

 
At 3/07/2007 09:12:00 AM , Blogger Lisa said...

Subprime is getting shut off. HELOC's on AltA could be next for tightening. Once all this exotic financing gets harder to qualify for, I think we will start to see more serious price drops. But the total drop would have to be at least 40% to even get close to alignment with incomes, so I wonder how far we'll go.

If banks go back to lending @ 3x gross income, and the median HHI is around $60,000, hmmm....

 
At 3/07/2007 09:52:00 AM , Blogger Athena said...

correct slinky... yet here in Sonoma they claim it is the outdated hospital that makes it hard to recruit doctors. I think someone is not paying attention. That whole everyone wants to live here thing is getting really old. When Doctor's can't afford to live here you are going to have bigger problems than just an outdated hospital.

 
At 3/07/2007 10:18:00 AM , Blogger sf jack said...

I think we have a problem.

If I recall, there are only about 125 medical schools and under 1 million physicians in the United States.

How are we going to crank out enough doctors so that all of Sonoma's population would be doctors?

Not to mention the whole place would have to become one huge medical industrial complex kind of place.

And every one of them would have to be convinced to buy grossly overpriced real estate.

No more wine business (wow, athena, you've really "pulled the cork out of wine country real estate").

No more tourism.

Sad.

 

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