Wednesday, June 01, 2005

Home Bittersweet Home

Pardon my lack of sympathy. I have none for the owners of Laguna Beach homes that are being reclaimed by the Pacific Ocean as we speak. They may lose their ocean view, but even 80 percent return by insurance will allow them to remain in California. That kind of a return on homes that probably range between $2.5 to $3 million on stable ground would allow them to live in pretty much any affluent California neighborhood that doesn't include a coastline backyard.

I will confess being a little bitter about the ridiculous cost of homes in California. I can't live in the suburban Sacramento neighborhood in which I work because the average cost of a home here is about $475,000. That's for a 3-bedroom, 2-bath, 1400-square foot home that could've been had for about 1/3 the price four years ago. That means a household income of $90,000 annual with a 20 percent downpayment still could not qualify for a 30-year loan. In these parts, the 40-year mortgage is becoming more normal, putting the long-term debt of many California families into a critical state of concern. Other lenders are bending their own rules, allowing up to a 50 percent debt-to-income ratio to qualify for homes. Anyone want to bet the default rate will triple in the coming years?

I wasn't here four years ago. I moved here in September, which means I missed that crucial deadline to win the real estate lottery.

The cost of homes here have driven up the cost of apartments by nearly double in that time frame. A 2-bedroom apartment fetches as much as $1,600 these days. If you want to move 80 miles down I-80 to San Francisco, I'm told the general rule is to take the Sacramento number and multiply times 3. Actually, it's people cashing in on a nest egg of equity and moving from San Francisco to Sacramento that is causing much of the real estate boom here. City and state workers in the Bay Area are retiring very early as millionaires and moving to the Sacramento Valley.

The state blames a severe housing shortage for the ridiculous increases -- as much as 100 percent in two years in some places. The state estimates a shortage of as much as 10,000 homes per year -- that's a shortage increase of 10,00 homes per year -- will continue for another decade. Home builders just can't keep up with the number of people moving here, while the costs of hard materials such as wood and metal have skyrocketed (I assume because of the mass inflation of oil prices).

If you're on the East Coast, I imagine you snickering at me. People in New York, New Jersey and Pennsylvania are used to these kinds of numbers. What you may not know is the salaries in California have not kept up with the cost of living. It's enough to make me question my politics.

I'm as much a captitalist as the next white guy from the suburbs, but at some point the market has to bend to meet the needs of people such as myself. Home ownership is the most fundamental investment a middle-classer can make. It appears I have somehow missed the boat, that I am now low-income in spite of my white-collar occupation.

I'm not asking for pity, just some reasonable answers. As it appears now, moving back to Arizona is a very real option. For my long-term financial status, it appears my only option. Those who bought homes in California years ago have won the lottery. In time, though, if the market remains on a static pace, it will truly become what those Chicken Littles of the '80s said it would become: two classes at polar ends of the economy. It's a reality of free markets I never thought I would see in my lifetime.

2 comments:

Broken Messenger said...

Matt,

You should live up here in the Portland area. We complain about how a 1400 sq. ft home is now $180K-$200K (up from $130K about three years ago). $1600 for a 2 bed room apartment?! Yow! You'd pay half that here.

Brad

Gaddabout said...

That sounds extremely reasonable for a coastal town -- about what I'd expect to pay in Phoenix. The wife and I have both had Seattle on our radars for years. Perhaps Portland is the better alternative.

FWIW, I pay about half that rent right now for my two bedroom, but my neighborhood is ... let's just say it's a very humble neighborhood, kept humble by nightly visits from the police copter.