We in California are in the midst of an extreme housing crisis. One way this shows up is as exorbitant prices to both buy and rent homes throughout the state. I’m fine with high prices, so long as they’re affordable. Unfortunately, they’re not: home affordability in our area is absolutely terrible. It’s about 15% to 18%, which means only 15% to 18% of households can afford to purchase a median-priced home. And that affordability figure is calculated using an assumption buyers have 20% for the down payment, which many would-be buyers do not. Rental housing isn’t much better, so we have a lot of people living in unsafe, expensive, or overcrowded homes. You’ve probably noticed the tent cities popping up under freeway overpasses and bridges everywhere. It’s shocking to see, considering we live in an area and time of almost unimaginable wealth. It’s a stark and unavoidable sign of how severe the issue is. Fortunately, California legislators are doing something about it at last. Recently, San Francisco Senator Scott Weiner introduced SB-827, which would radically alter planning and zoning laws in California. It would require high-density housing within close proximity to transit stops and corridors. This is a radical step, but desperate times call for desperate measures. Please support Senator Weiner and SB-827. Call your own state representatives and let them know you support more housing for California. On the other hand, there are efforts afoot to increase rent control throughout California. I know this may feel like a good idea to some of you, and … Read More
Last week, I appeared on KSCO radio to talk with producer Brad Polisuk about the Santa Cruz Housing Crisis. I was joined by Evan Siroky from Santa Cruz YIMBYs (“Yes In My Back Yard”) and Robert Singleton of the Santa Cruz County Business Council. There was a lot of food for thought and not anywhere near enough time to digest it all. You can listen to the 2 o’clock hour of the show where I appeared below. Listen to the Show Here One thing I was struck with were the callers, none of whom it seemed were younger people, that is, renters who are most affected by the housing crisis. The callers seemed as though they were older homeowners who already had their slice of paradise, and weren’t keen to share by permitting much in the way of further growth. This in a nutshell is the problem with creating more housing in the county. It’s folks like the radio show callers who are the people who vote and show up for meetings, and to a large extent they control the dialog. Before our discussion, I was asked to be prepared to come to speak on several points. I wrote up some notes, and rather than just toss them now that the show’s over, I thought I’d share them with you here. Why is Santa Cruz real estate expensive? In essence, I believe it comes down to land use planning: we have very low density zoning. The general plan for Santa Cruz county states that we … Read More
You really need to look at the year before to see how the market performed – and from the statistics, we can see the median home price, county-wide, is actually down 33.5% in April of 2009 compared to a year ago. … Honestly, I am mystified how people can take a few anecdotes, completely ignore the state of the economy and the housing market as a whole, and now herald, with strident authority, that we are now at the bottom of the market and THIS, TODAY is the time to buy, or you will miss out on the chance of a lifetime. … Well, that’s not true – short sales can also occur at those prices, and some people who have had their homes a long, long time may have enough equity in them to compete with all the REOs and short sales. … Personally, I think it’s going to put increased pressure on the bottom of the market, as many people who were looking at buying a lower-priced “starter” home may now be thinking of stretching to go for one of these “premium” foreclosures which I expect we’ll be seeing.
Whether you think the current housing crisis is a cause of a symptom of the economic meltdown in the United States and abroad, there’s no denying that there’s a great deal of uncertainty about how long this recession will last , how deep it will cut , and what this means for people looking to buy a house in Santa Cruz today. I’ve said it several times in various postings to this blog, but I think it bears repeating: I think home prices in Santa Cruz county will continue to drop for the foreseeable future – and by that, I mean the rest of this year, at least. … It’s not a new thing – as I mentioned a blog entry or two ago, this multiple-offer feeding-frenzy has been going on at least 18 months, I don’t see that it is more common today than it was a year or so ago – but perhaps it’s being talked about more in the media, as there is now more effort into talking up the economy rather than talking it down. … I had seen it when it had come up (I send myself e-mails from my automated system for every bank-owned home that hits the market), but at the moment, I had a number of deadlines I was working to meet so I didn’t look at the particulars to see that it was really an incredible deal. … Actually, when it started out, I don’t think it was a short sale – but as the months went by, the price was reduced until finally the owner owed more on it than the market would pay.
Fact is, we have been seeing multiple offers for well over a year now on these bargain-basement properties in Watsonville – and pretty much anywhere in California where bank-owned foreclosures are sold several percent cheaper than competing properties – these properties attract multiple offers and sell quickly. … Pretty much – I didn’t go into 87 Arista when it was on the market, but from what I can tell on the MLS from the pictures, the choice of paint colors and level of amenities in this home was about on par with my listing. … And then, a scant two months later, my own listing comes on with an asking price of $250,000 – that’s 3.8% less than the sale price of a very very comparable property which closed just two months earlier…and I’m on the market eight days, and I’m standing in a field of chirping crickets . … But not too far below – if in fact you were able to buy a home for 10% below true market value, you could not do a thing to the property, then turn around and sell that property to someone else the next day for 10% more than you paid for it.
The Housing Crash guy says: A landlords’ rule of thumb is that a house price should be a maximum of 15 times the annual rent for that place, yet in coastal areas, houses are still selling for 30 times annual rent I think he’s got a good point there – which goes to underscore my belief that prices in Watsonville are actually very reasonable at the moment. … Looking over the ads on Craig’s List, it’s safe to say that a 3 bedroom, 2 bathroom house would rent for about $2,400 a month in Santa Cruz, assuming it was in a not-so-great location. … Let’s look at the payment for a $500,000 house – but let’s assume you’re putting down a reasonable 10% instead of the FHA minimum of 3.5% – so you’d have a $450,000 loan, again at about 5.75% because with only 10% down, you’d still need to pay mortgage insurance. … Let’s say you’re in a tax bracket of 25%, and you can figure you’d save about $640/month in federal and state taxes, bringing your effective monthly after-tax payment to about $2,519 per month, or just about $120 more than renting.
Happy New Year! I hope everyone had a safe and sane New Year’s Eve, and I hope that as I type this on January 2nd, most of you are taking the day off to spend on vacation, or with friends and family. We’ll all get back to the grindstone soon enough, but I think that after all the chaos and tumult of 2008, everyone deserves a four-day weekend to start off the new year. Can you feel it? I’m feelin’ it. I am, of course, referring to the angst surrounding the real estate market. There are a lot of people out there who would like to buy a home in Santa Cruz in 2009. There’s also a lot of people who would like to sell a home in Santa Cruz this year, too, but feel they cannot or should not because they now owe more than their homes are worth. Thanks to the likes of Google, many of you can easily find the predictions for the 2009 real estate market. I’ll give you a summary of what they’re saying: prices are expected to continue dropping through much of 2009 (probably all of it, if you ask me) but not by much. Interest rates should remain low at least for the first half of the year. We may start to see a rebound in prices in 2010, but it will be moderate. The much-loved California Association of Realtors has put out a report titled State of the California Housing Market 2008-2009. Unfortunately, they want you to pay … Read More
Of course, the reverse was true on the way up – ridiculously easy credit , liar loans , lax underwriting standards , and mortgage fraud – all of this played a part in the enormous run-up in prices that we in Santa Cruz enjoyed for most of the early years of this decade. Wether you are a prospective home buyer or a home owner, the role of credit is very important to you – it strongly shapes your ability to buy a home, or the price for which you will be able to sell your home. … The good news is, the conforming loan limits for 2009 will stay the same as in 2008: For Santa Cruz County, the new “high-balance” limits are: 1 unit $625,500 2 units $800,775 3 units $967,950 4 units 1,202,925 For Monterey County, we weren’t as fortunate. Here are the new limits: 1 unit $483,000 2 units $618,300 3 units $747,400 4 units $928,850 I asked the lender if a house with a legal accessory dwelling unit (aka “granny unit”) that could be rented would count as a “2 unit” property.
Still, though – if you have a house in Santa Cruz, you’re looking at it being worth about $58,725 less than it was this time last year, if your house is something like the median house. … I looked at Sold Single Family Residences: Median Price of Sold Houses in June & July of 1999 Watsonville: $247,000 (1.0) East side Santa Cruz: $390,500 (1.58097) West side Cruz: $395,000 3/2 1486 (1.59919) Capitola: $360,000 (1.457489) Soquel: $379,000 (1.5344) Felton: $310,000 (1.2551) What this says is that back in the summer of ’99, the median-priced house in Capitola cost about 1.457 more than the median-priced home in Watsonville. Now, let’s look at sales data from September 2008: Watsonville: $352,000 (1) East Side Santa Cruz: 615,500 (1.74857) West side Santa Cruz: 702,500 (2.0468) Capitola: $711,000 (2.01988) Soquel: $610,000 (1.73295) Felton: $486,500 (1.3821) (* August 2008) You’ll notice that compared to the 1999 ratio, the sampled areas in the county appear considerably higher relative to Watsonville than they have been historically. If we use the same ratio from the summer of ’99, here’s what prices in the rest of the county should look like today: Watsonville: $352,000 East Side Santa Cruz: $556,501 West side Santa Cruz: $562,914 Capitola: $513,004 Soquel: $540,108 Felton: $441,795 What does all this mean?
I should have just sat there and watched as my hard-earned dollars evaporated, sucked it up, been a man, and lost all that cash, the price to pay for participating in our capitalist system. … So let me assure you – if you want to buy a house in Santa Cruz, and you have decent credit (at least a 580 FICO Score to qualify for an FHA loan, I believe) and you have the debt-to-income ratios required by the guidelines. … Mind you, the median price these days in the county is $585,000 (as of August), so it’s getting to the point where you can actually buy a habitable structure in a somewhat central location for that kind of bread. … That would leave you with a whopping loan of $482,500 and payments (all-in, including principal, interest, property tax, and insurance) of about $3,500 a month (roughly, approximately – and that’s before your considerable mortgage interest tax deduction ).
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