568% Increase in Foreclosures in CA
There's been so many comments on housing of late, I thought we could start a new thread based on this article from the Central Valley Business Times which points to foreclosures in California increasing 40% in one month. Some 12,300 properties represents a 568% increase over 2006.
Labels: foreclosures, housing
posted by Sara De la Guerra | 11/25/2007 02:38:00 PM
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133 Comments:
What an opportunity of a lifetime for people with a few bucks to buy up the foreclosures and rent them out at reasonable rates to help those who are in need and can afford a lease with option to buy.
A great service and a good deed too. I have tried to do so myself but in THIS city, you have to have a Levy, McElhenney, Warner, etc. in your name.
It would be great if Ty Warner could lend his expertise to the lower than the multi-million dollar group for which he has poured so much money for 5 star venues. (City peeps would not agree as they would get nothing out of it.)
How about it, Ty? I know you are a hands-on worker at the construction sites so maybe you could branch out a little!
We all have to work together to make lemondade out of all those lemons.
(there is a convoluted sentence
3rd paragraph but the clock is running.. you smart people will get it.)
Why is this even news? This is the natural fall-out of the absurd sub-prime lending scheme.
Everyone saw this coming. This is a natural market adjustment and most of those losing their homes are cynical flippers and speculators. This is not news. They took a risk, got greedy and are now losing their bets.
Please no croccodile tears over the moms and pops who were defrauded by the nasty lenders. Buying real estate is for intelligent adults. Land speculation and losing is for silly kids who need lessons in growing up.
This is very misleading ---because they are talking about the number that ago into default and the bank records a notice of default which gives the opwner 4 months to either come up with the money for the payments by either selling the house or to get a new loan.
So 90% of the increased level of foreclosures are saved and never get to auction.
90% of those that do get to auction have the loan (and therefore the amounbt of minmum bid) as higher than the current value of the house.
This is because they bought the house at the top of the market for say $900,000 with $100,000 cash down payment and a 90% %, $800,000, loan but in the last 3 years the houses in Calif. have dropped 20% in value, so the house in foreclosure is now worth $700,000 but the loan is $800,000 so they walk. The min bid is now $800,000 on what is now a $700,000 house.
The auctions are NOT an opportunity for buyers because one needs 100% cash at the time of auction in the form of a cashiers check, so no loan is possible.
Just how many buyers are running around with the required $600,000 in cash in their checking account to be able to go get a $600,000 cashier check? I'll tell you how many --NONE
Remember this saying because it is so very true:
THERE IS NO FREE LUNCH!
It's time to end private home ownership. Co-ops or government run is the way to go!
8:52 - be sure to visit East Berlin and see the fruits of your theory in action. In fact, you can have your pick of the rows upon rows abandoned government flats, evacuated the moment the wall came down. I do believe you will find this housing choice of yours highly affordable.
i heart renting. for once.
"THE HOUSING ISSUE IS DEAD!
The soicialist housing advocates lost."
One seat changed on SB council does not a win for sensible planning make...
And don't forget the COG is pouring on the housing coals even as we speak.
McClintock and Nava have been MIA on this issue, in fact, for all we know Nava is pushing this crap on us (in Sacto) because he knows it doesn't effect the "protected class" in Montecito...You hear anyone talking about 400 unit condos and apt buildings there?
The bankruptcy problem only highlights what happens when you artificially "help out" those who's eyes are bigger than their stomachs. You prop them up and they fall right down. So much for the "American Dream".
The excrutiatingly painful reality for us is we're still replaying this problem here in our typically slow motion fashion...
The demand for housing is an artificial one played up by all the "do gooder" coalitions (you know who you are)representing a population that can't yet afford "The Dream" but want it NOW anyway. They're 20-somethin and entitled right?
They're "hard working", "just looking for a better life (that we owe them)", non HS graduates and can't understand why they can't have 6 kids a good job and "affordable housing".
Classic "If it sounds to good to be true...IT IS.
9:44
We are gerting our own little boxes right on Chapala street in those new monstrosities.
They are going to have a hell of a time sellijng these. and anyone folliush enough to buy one is not going to be able tore-sell it except for much less then they paid. HA!
Oh Sara... I give you such credit for trying. Two (one is mine) intelligent comments out of six is poor odds.
Do you have any card tricks?
Joking.
Keep it up... I appreciate what you do and I am NOT an onliner; Just happen to be a phogog on the computer all the time. You give me great diversion.
The little boxes on Chapala are getting sold for short-term vacation rentals and not workforce housing as promised when they were begging their way through the planning and permit process.
Seems no one wants to be homeowner neighbhors with the inclusionary housing set who gummed up the works of Chapala One by sticking in a grim row of small dark two story shoeboxes in order to get increased density (read profits.
So this grand housing scheme beamed upon by all the city council now is a housing distortion and does nothing to bring is the "first responders" everyone is so dearly in love with because the speculators snatched up the properties for short-term vacationers.
Has anyone on the city council weighed in on this generous boon-doggle that did not even come close to all their back-patting congratulations for providing market rate work-force housing as promised.
The whole thing was a Bermant scam. Watch out for him the next time he pulls the wool over the next city council.
Well duh, what restrictions were put on the potential owners of this promsised market-rate workforce housing to insure it actually went to work force people?
None. None were asked. None were offered. Yet this was its stated goal. And city council was so proud of its accomplishments.
Don't get me wrong because there is nothing wrong with bringing wealty tourists into this part of town - bring 'em on. But let's no longer grant developers all sorts of concessions for promises they had no way of keeping nor were held to. You got 6 or 8 ratty ghetto inclusionary units. Big deal. How many went to cops and nurses? Zip.
3:59 p.m.
Please respond and tell us all what a phogog is?
Ignorance is one thing, but fibbing is another to make a point, because if you fib too often no one will believe anything you say or write.
The Bermant boxes on Chapala St. never promised but a few of the condos to be made available as local workforce housing.
Those condos that were restricted as such had strict limitations on household income, based on the past several years of tax returns and County residency.
They never were intended to have any restriction on what professions, such as cops or nurses, had an entitlement to access for those condos.
If you parade of anonymous critics bothered to know some facts, then your sometimes justified criticisms then would be credible.
The application for the lottery to get one of those workforce housing condos made all these rules plainly clear.
Unlike the insinuations, this housing program has no fraud, but the sliding variable about how high the household income can be is the root of the problem, as the qualifying income keeps creeping upward as the costs to build the project increase. Thus, the target audience keeps getting smaller as the minimum income levels rise to qualify for one of these subsidized housing condos.
The current wave of California foreclosures, particularly in the Central Valley, is--as coincidence would have it--the subject of this week's post at the Santa Barbara Housing Bubble Blog. Therein you can link directly to our Governor's recent press releases touting what he holds out to the public as his initiatives to stem the tide of homeowner pain -- this from the same muscled man who owes every one of his careers to having lived the mantra "No pain, no gain."
Today (Monday), CNBC's "Realty Check" reporter Diana Olick was all over the topic, both on-air and online (see Loan Modification Anyone? at cnbc.com). Diana and I are on the same page.
Saint Barbara
Saint Barbara's statue on Plaza de la Guerra would be nice.
I was interested to see what the folks in Bakersfield are proposing.
If Joe Lender sees fit to throw Jane Doofus or a conniving property flipper into the street then Joe Lender can pay a property management company to maintain the home or face a $1,000.00 per day fine up to $100,000.00.
Seems that lenders are currently abandoning a lot of properties which then become a liability for tax payers who don't want fire hazards, crack houses and vermin to over run their neighborhoods.
Meanwhile, one lender announced up to 20,000 employee layoffs today.
So much for, "No one is losing their home." or "It's simply a market correction old chap!"
It was the lenders, not the borrowers who gambled and lost. You think not? Then let me borrow a half-million dollars on your credit card.
This mess wasn't created by individual home buyers or public policy, it was created by greed.
In my opinion changing the subject to imply otherwise is nothing but foolishness and spin.
Bermant's Chapala One was presented primarily as market-rate condos in the $600-700K range for middle income workers. Look at the planning commission hearings. This was the intended market -- "affordable by design".
The demand for the really cheap, non-market rate inclusionary units was a separate feature of this project tacked on to get city concessions, but the key feature was the targeting of the rest of the units to be single family residences "affordable by design" entry level prices for professionals, and mid-level income workers.
Go back and look at the presentations made to the Planning Commission. No one thought to ask how they would control the market prices. And in fact, there was no way they could which became immediately apparent when the first one bedroom was sold in the low one million that affordable by design was no longer affordable to the middle income workers.
Then came the stories about selling many of the units to speculators for short-term vacation rental, also bringing an end to workforce housing for local residents.
Bermant got concessions on set-backs, open space, density and creek setbacks, all because of the way the whole package was presented. His architect was known for his good public housing designs. The whole thing came across as good guys doing good things for our local population who would give up their zoning code to get some workforce housing in return.
They even tossed in an exemplary rental re-location scheme that later showed it almost guaranteed none of the displaced tenants would ever be able to exercise their options to buy back into the new building.
So many of the promises to the community simply never materialized. Market forces took over and prices rose like cream. This is not in itself a bad thing if the project had to have adhered to stricter compliance with zoning restrictions.
Yet, Bermant got all the planning concessions by playing it as a public benefit project - "affordable by design", and ended up paying little in return to get these concessions.
Look at the Planning Commission transcripts, read the praise the commissioners felt about this project as presented, and stop trying to re-write history this late in the game.
Learn from this very recent past so we are not doomed to repeat this nonsense again. Basically many in the city were seduced and abandoned by this project.
And that is even before the height and setback problems of this project became so apparent.
I am sorry this in fact did not end up workforce market rate "affordable by design".
But we now know that is one more pro-development term to discredit based upon this example. Add that to the cacophony of "smart growth" which now comes across as developer-speak for get what you can, maximize profits and guarantee nothing in return.
Solution: Can the city impose owner-occupancy requirements for new projects like this, when so many zoning code concessions are granted? How would this be enforced? Do any other communities require owner-occupancy? It is time for the city to do some horse-trading on new projects rather than give away the store and roll over when their smart-growth dreams blow up in their faces.
Or, better yet get out of the housing business with their socialized housing schemes, require strict compliance with the zoning ordinance, stop granting modifications, trash the inclusionary housing farce and let market forces prevail.
Build Build Build! The only way to make housing affordable here is to repeat the 1930-1970 era here that gave us all the housing that folks so dearly love here now.
Let the free market provide us with more housing: the supply side of free enterprise can solve our problem.
Contract County and City planning out to private agencies run efficiently to maximize housing. Same for all the sanitation and water districts.
Israeli desal plants! Euroincinerators for trash! Japanese mass transit! A Parisian bike rental system! Hanging Babylonian organic gardens along the steep slopes of the Santa Ynez Mountains!
All run by efficient American can-do private enterprise. Hire Newt Gingrich as the County CEO!
This place can sustain 3X more population and have a 5X better quality of life and sustainability.
Anything else is socialism! All you folks who say we have reached build-out: why don't you move to Cuba where you'd be happier?
Everyone keeps forgetting all houses in Santa Barbara are affordable..... for someone.
They get sold so ergo, they obviously were affordable. So let's stop using this meaningless term and describe what you really are saying.
You want housing for those who demand it at prices they think are reasonable, which has absolutely nothing at all to do with market prices, costs of construction or their own resources.
That is the true working definition of "affordable housing".
It is in fact a public benefit give away that creates a new elite class of wind-fall recipients who owe nothing back to the taxpayers who gave away this benefit ...except having their equally injudicious friends line up and also demand more, more, more.
Chapala One taught us a very important lesson: there is no such thing as "affordable by design" in this town. The next lesson the city needs to learn is you do not build cheap housing on expensive land.
Nice ironic post Hiram Johnson!! Another voice from the past. Love those pseudos.
He's the guy born in Sacremento who brought us referendum and recall politics--a vote for every issue. How come Lois Capps is still in office? She said two terms only.
While he may look better than me, I don't think he merits a statue on the Plaza--not a hometown boy.
How about Pearl Chase? What would Pearl Chase do?
'City beautiful'she'd say--and form a landmarks, and city parks commission with public input. Res Publica and not populism.
Progressives and planning go together like ice cream and chocolate.
What kind of city would 'the people' planners give us with their majority votes. Hah! Ridiculous idea.
to hiram johnson
Something is very wrong with what you say.
You have it backwards. It is the socialist progressives who are the high density growth advocates combined with a few developers. The rest of us which are the vast majority of residents (somewhere around 75% of the total) are moderate democrats and moderate republicans.
You say build...build... build.
What you don't realize is that if we build 'THEY' will come.
Just how many people do you want to live on the south coast? 600,000?
Now there are 200,000 on the south coast ( 400,000 in the whole county). This is only a tiny 1% of the states 38,500,000 people. Now there are 20,000,000 people living within 100 miles of Santa Barbara and the State is growing by 600,000 per year. Now just how many of those 20,000,000 do you think would love to live here in paradise. I'll tell you how many...all of them if you gave them a job and an affordable house to live in.
Our main resource constraint is our transportation system. ( second is water) We live on a narrow coastal shelf 4 miles wide by 30 miles long. there are only 3 arterials running east to
west: The 101, Foothill, and State/Hollister. SBCAG did a traffic study that predicts that in the year 2030 that the entire 101 freeway system including all of its interchanges and all of the arterial streets leading to the 101 freeway will be at level E total gridlock. and thats with a projected population on the south coast of 220,000 population.
Now just how do you expect 600,000 folks to get around. traffic would be bumper to bumper on all the major streets and move at 5 m.p.h. It would take a 5 minute wait to get past each and every traffic light. It would take 2 hours to get to work. the busses would be in this same gridlock so it would also take 2 hours to take the bus. From my house it takes me 2 hours to walk the 6 miles to downtown. and I cant ride my bike up the steep hills in the dark and the rain. the streets are too narrow to have a bike lane so I have all of 12 inches of space between the cars and the hillside. Cars have passed me at 30 m.p. h. with 6 inches of space between me and the car. What if i have to carry a big purchase home on my bike like 4 bags of groceries or a new golf cart? what if I have to take my 3 year old to the doctor. On the handlebars of my bike? In the rain? in the dark? up the steep hills? On a 12" wide bike road space? for 2 hours? How about folks 70 years old who can't ride a bike up a hill. I don't think so.
Now how about water? we only have enough for about 200,000 population on the south coast. if we grew to 600,000 and had several years of drought with global warming and nom state water and the lake dried up ( which it would) and our groundwater becomes depleted do you realize that it would cost billions ( yes billions) to construct a desal plant with a capacity for 600,000. we don't have land for such a huge plant which would be the size of Earl Warren show-grounds and the cost in electricity and membranes to operate it would be prohibitive. where is all that electricity going to come from. the cost of water would be $1 per gallon, so a water bill would be $10,000 per month and no water to wash your car or to water a garden and NO WATER FOR AGRICULTURE.
My friend, you just don't know what you are talking about when you say that the south coast can triple its population to 600,000 and be sustainable.
Hiram:
One last thought on your post:
What's wrong with thinking about:
"Israeli desal plants! Euroincinerators for trash! Japanese mass transit! A Parisian bike rental system! Hanging Babylonian organic gardens along the steep slopes of the Santa Ynez Mountains!
Now you're talkin'!
You populists were always so Nativist in your point of view! Not a cosmopolitan bone in your body.
Are you against more olive trees too?
Unlike the insinuations, this housing program has no fraud, ...
Yeah right. Care to put a wager on that?
Anonymous 11:24:
Thanks for the review of what did happen. Missing only is the date of the Planning Commission hearing(s) --- I don't think there are transcripts (are there?) but the tapes of the meetings are available or at least the minutes are available.
When did this project go through the PC? Indeed, it would be good to learn from the recent past but to do that, the past must be available. It would be good to have on record what Bermant and supporters said - and what the reality is.
"Affordable by design" is one of the biggest fibs of all.
My prior comment still was about the few condo units that are restricted to locals with medium incomes.
What kind of "medium income" does it take to be able to buy a $600-$700K condo?
The people, yes! I'm a populist, and you know what? If we put it to a vote of the people of California, they'll say: build build build! They want the American Dream of a nice house.
Thanks Don Jose, yes, in my prior incarnation I was to nativist, but no more!
1000 friends, you know, out in California there are 38,000,000 friends of Santa Barbara.
And they know that if you let the free market loose, it can solve everything. You just have to set the forces of capitalism free, and those forces will make great housing here and a fantastic quality of life.
There is only one constraint on business that is worth it: to prevent graft, corruption, and monopolistic behavior. Slapping government constraints on the construction and development business through zoning is Big Government Socialism! The only reason for zoning is to untangle bordellos from churches, factories from residences, and pig farms from everything else.
Water? Israeli Desal Plants. They've grown way cheaper, and with good old American know-how, we can do it for only $1 billion. Put most of it underwater!
Transportation? A Parisian bike rental system and a light rail system based on the train corridor we now have copied from the Japanese.
If you need to take your 3 year-old to the doctor, just drive! Our roads are not clogged with people doing that, they are clogged with single-driver folks running errands and commuting to work. Free the streets for the PEOPLE who really need them, not for the careless and lazy!
Sustainability? Hanging gardens on the slopes of the Santa Ynez mountains.
1000 Friends, THINK POSITIVE. Don't be a nattering nabob of negativism. CAN DO!
Let's put it up to a vote of the 38,000,000 people of California!
10:23
I don't care who you are but you are just plain wrong when you say that there is no such thing as "affordable by design."
Your statement is patently wrong!
I am an expert in housing and I can state for a fact that the design ( which includes the size and ceiling height) has a direct relation to the construction cost.
It is a fact that the construction cost is directly related to the sale price and thus the affordability.
The problem we have in our community is that only 5% of new market rate units are being designed to be affordable by design and that 955 of market rate units are being designed to be able to sell to the high end market consisting of units selling for over $1,000,000 and often $1,500,000 to $2,000,000.
It does not take a brain surgeon to figure out that just because only 5% of our new units are being currently designed as affordable by design that this does not mean that there is no such thing as affordable by design.
What is needed is a limit on the size of new market rate units as follows;
Studio condo: 900 sq. ft.
1 bedroom condo: 1,200 sq., ft.
2 bedroom condo: 1,500 sq. ft
3 bedroom condo 1,800 sq., ft
Plate heights should not exceed 9 feet to be affordable.
and subsidized affordable units selling for around half of the market price should have a smaller max. size as follows;
Studio: 800 sq. ft.
1 bedroom unit 1000 sq. ft.
2 bedroom unit 1200 sq. ft.
3 bedroom unit 1400 sq., ft.
plate heights should not exceed 8 feet.
These small sizes are "affordable by design" compared to big units.
Dear 1000 Friends of Santa Barbara:
I think you missed the point of ol'barbed tongue Hiram Johnson who probably thinks like you, hates planners, not to mention city government. He wants the "people" to decide these issues. He also clearly doesn't like "foreign" solutions.It's a familiar position.
I thought the facts you laid out in your post were thoughtful though.
1000 Friends would make for too many statues on Plaza de la Guerra. Maybe if they were buried though--like those fantastic and unique clay soldiers that served some wild Chinese Dynasty.
The values I am presenting are approximate and this is not a rate quote. I simply figured this up based on the information requested using mortgage calculators and current rates. I am figuring that the buyer would only have 5% down as that is a common number for that group of purchasers. On a $600,000 loan that would be $30,000 and leave a balance of $570,000. I am also figuring on the person having A+ credit. I am keeping it simple by not considering mixed mortgages or ARM's. Based on a fixed rate of 6.75% the payment alone for principle and interest would be $3697.01. This does not include property taxes, PMI or insurance. Add $700 a month for taxes and $ab out $100 for insurance. You are looking at about $4400 a month plus PMI. At a 39% debt to income ration, you would need $140,000 a year to qualify, though some lenders used to allow buyers with excellent credit higher rates of debt to income. That may still be true. I am also assuming that you have no other debt.
The median income for a family of 4 in SB is $67,000.
Fibbing, my earlier comments about Chapala One were not clear. Two parts to this project: (1) the inclusionary units that do go through a city process for allocation and (2) the rest of the market units promised for the middle income "affordable by design" during the planning and permitting process.
The "fraud" I charge is the developer promises not kept to ease this projects way through the planning process and the city not asking for more assurances these promises could have been kept.
Everyone was sleeping through this one because it is obvious now in retrospect, there is no way these units would not respond to the market and the market today is speculating and short-term vacation rental which is as far from the projects initial first blush to the PC and the CC.
All we can do now is learn from these mistakes, and there is no mistake putting more high-end market rate units into the core of our downtown so I do not intend this to be an argument for more inclusionary housing because I don't think one can "save the middle class" in this town; nor should we even be trying.
What ticks me off is we are not planning for the realities and benefits of this being a very nice, very high-end town. Let's plan for this and make it work and stop trying to turn the clock back or indulging foolishly in utopian social schemes that only create more and more of a state welfare burden.
Bring on the wealthy residents who can afford to pay for the middle class services and raise the wages for everyone here and have them pay more property and sales taxes on premium goods to line the city coffers as well.
The last thing the city needs to encourage are more poor people, especially in the heart of its downtown commercial district. We have plenty, so no one needs to cry over the loss of our lower classes either. We have more than our share with more coming everyday because we already are so generous to them.
I say the truly endangered class are the high-end taxpayers who keep this whole socialized scheme afloat. We had better learn to be kinder to them and make them still want to come because an awful lot is starting to turn them off around here and we will all be losers because of that, especially the whining lower income groups that keep demanding more, more more.
We need more rich people to fleece here to support all the poor people with their hands out demanding more and more and more.
Yeeeee Haaawwwwww!
Let'er buck Hi!~
12:42
Today I saw a 2 bedroom single family house in a good location in Santa Barbara north-side for only $649,000 asking price . maybe they would take $625,000 and maybe one year from now it would be $600,000.
I also saw a real nice 1 bedroom condo in Goleta for only $349,000 asking price.
there is a huge misunderstanding about just how much a couple has to make in order to be able to buy a house here on the south coast.
the reality is that it is extremely doable. all it takes is 3 things;
1. Willing to stick ones neck out a little and take a little risk
2. willing to sacrifice a little and spend 50% of ones after tax income on housing instead of the national average of 30%.
3. willing to get a variable interest loan with its lower INITIAL interest rates.
4. willing to take the time to seek out an expert like myself who knows, and understands, all the creative financing methods.
it can be done.
For example say a couple each makes $50,000 per year after tax ( $60,000 per year before taxes) for a total household after tax income of $100,000.
This is a lot of money: $8,333 per month after taxes.
so 505 of that is a whopping $4,166 per month. subtracting $1666 for property taxes, fire insurance, and repairs that leaves $3000 to make the loan payments. Now one can get a $600,000 variable interest loan where thee payments are $3,000 per month.
this leaves the couple $4,166 each month to pay for everything else which is very easy to do. food is less than $1000 per month. car expenses for 2 cars another $1000 per month. Clothes and entertainment another $400, furniture and appliances another $300 , etc.
One can get a loan ( even today) with zero down and 100% financing. Or an 80% loan and owner carry back the other 20%, or a 90% first loan plus a 10% second bank loan. Or 90% loan and 10 % cash down. The possibilities are endless.
So the $650,000 house I mentioned could be purchased with $50,000 cash down plus a $600,000 loan with $30000 per month payments representing 50% of the couples after tax income.
now its a fact that Santa Barbara is just full of $60,000 per year jobs. but these folks are led to believe that they can't afford to buy a house here when in reality they easily can.
citywatcher:
even jeff bermant is on public record as saying the project was not one he was pleased with.
perhaps a 25% real estate sales tax would help. use the money to buy every fifth house for to rent to existing community members instead of selling it to some LA or orange county transplant.
keep an eye on the cottage hospital workforce housing project at the st. francis site. how many "market rate homes" will be sold to out of towners in order to support the units dedicated to cottage hospital workers? it is a rotten deal for all.
no more impermanent residents buying up our limited housing stock so our lower paid workers have to commute from lompoc.
we are at the tipping point folks. when michelle giddens and her ilk make a decent showing in the polls, it means there are not enough people paying attention, not enough people who care enough to want to make a difference.
I CAN CHANGE THE WORLD BUT I NEED YOUR HELP. STUDY THE CITY AND COUNTY PLANNING COMMISSION, ABR, LANDMARKS COMMISSION, AND COUNTY BAR AGENDAS FOR UPCOMING PROJECTS. GET ON THEIR MAILING OR E_MAILING LIST. PUBLIC COMMENT AND LETTERS AT THE HEARINGS CAN MAKE A DIFFERENCE BUT IT MUST COME EARLY IN THE PROCESS AND COME FROM MORE THAN ONE OR TWO.
Tomorrow: - Wednesday - Nov 28, 2007 at 6:30pm is a good place to start paying more attention to what is going on in this county over housing
Where: Board of Supervisors Hearing Room (I believe on the 4th floor) 105 East Anapamu
Regional Housing Allocations public hearing - learn what the county claims the State of California is asking of us. Learn what will happen if we do not do what the state tells us.
And use this opportunity to tell the county you don't care what the state claims they will do to us. Because we don't want to do what the state says and it is time to use our local elected representatives to tell the state to get out our our business here. Pedro, are you listening!!!
You can do it to: The whole problem with the current banking crisis is based on the fact that banks made high risk loans. The numbers you threw out are based on the free and easy days before the meltdown. ARM's, 100% loans, 80/20 loans etc. are high risk loans as are many of the programs you suggest. Even though I used owner financing and borrowed my way into my first home, I would not recommend going in on a nothing down. Even a 5% is risky. If you must get an ARM, get a convertible with no negative amortization and a reasonable cap. The bi-annual adjustments can be painful.
There are probably more than a few people who are looking at their property values drop who had no equity when they purchased the home. I got caught in the decline in the late 80's after refinancing and couldn't sell because I owed too much. It about killed me.
Also, mortgage loans are based on before tax income, not after tax income.
If there is a mortgage or real estate professional out there that could update us on the current requirements, now might be a good time to paint a current picture of the market.
The thing I find most disturbing about SB real estate is the pain factor. It is extremely high and goes on for years. You have struggle and scrimp to get a down payment and then have pray you don't have any extra bills for years after you get the house. Forget about buying furniture or fixing the place up. The funny part is you call that maintaining quality of life and proclaim it like a badge of honor. The rest of the world thinks your nuts.
To egs ackley:
I don't care what Jeff Bermant likes or doesn't like. He's just a wealthy developer...nothing more, nothing less.
A 25% real estate tax? That bad idea will probably sound good to 6/7ths of the current city council. Last time I checked, the Constitution prevented this type of social engineering.
Cottage Hosp. has met some strong opposition from neighbors. Watch the courthouse for this one.
You're right about Giddens. Francisco was a great hit, but Giddens would have been a huge mistake.
Yes, WE can make a difference. But it will take more people, paying more attention to do it. Marty and her bunch have taken us down the wrong road for quite a while. It will take a lot of effort to turn things around. It can be done.
hey 5:34
You are not helping matters by using a fully amortized loan with full payment each month of principal and interest.
all this does is to give a high payment for those who CAN afford it.
You are missing the point here. The point is to help those who want to buy a house here but think they can't afford it.
and to show them how it CAN be done not how it can' be done. Just whose side are you on here anyway??
You know very well that there are 40 year loans out there with the first 10 years as 6 1/2% interest only with no principle dew for the first 10 years.
This cuts the payment on the $570,000 loan from your $3697 to $3087.50 per month.
also the best way to buy a house on a low income is to get a variable loan at around 6.0% with a negative amortization teaser rate the first few years. It's not as good a loan as a fixed but its better than renting.
And the property tax on a $600,000 house is closer to $500 per month ( 1% per year on $600,000) not the $700 you say.
You forgot to calculate the income tax savings by being able to write off all that interest and taxes. this cuts the payment significantly.
You are not trying to help people but you are trying to hurt them.
What is wrong with you? Why don't you learn your business.
No-one in their right mind would buy real estate (outside of Montecito and Hope Ranch) right now.
Prices are falling, and they'll fall another 40% over the next 3 years.
Particularly nutty would be buying with an ARM. You'll find yourself with a 40% increase in payments in 2 years with your equity slashed by 40%. You are completely trapped at that point. And that real estate agent who talked you into it will be long gone.
The easiest solution: a $50,000/year tax for those who own residences but don't occupy them. Did I hear someone complain about social engineering with the tax code? Well, we have that all ready, thanks to Jarvis and Gann.
The housing market is crashing, folks. Save your money and buy later.
Oh god, my second home at Tahoe just went into foreclosure. Please pray for me.
1:46 I think you are the one trying to hurt people by giving them false information. The technical property tax rate is 1% but when you add all the bond measures, the real rate is between 1.25% and 1.5%. Also, negative ARM's are bad news, especially in a declining market. You go in with almost nothing down and in a couple of years your payments have gone up and you are upside down in the mortgage because you couldn't afford to pay the extra to cover the negative amortization. Been there, done that. I have had a negative ARM, fixed rates, no neg arms, interest only, 3 year fixed and a 90/10. I have owned homes in SB through 2 boom and bust cycles and was definitely middle class. What are your qualifications? Yeah, you may still be able to find loans that will get your foot in the door but not enough attention and education is given to people about what will happen 1-5 years down the road. Too many couples get sucked in and buy a house on a wing and a prayer only to find out they are in over their heads. It was the same 25 years ago except the affordability gap was not so large. You really could look down the road 2 years and know that you would be ok. The discrepency between price and income is so large now that it might take 5 or more years before a buyer can say they really can afford there house. It is a very thin tight rope and not enough attention is paid to the consequences of making risky loans.
I think Blogabarbara is just great! We have the dark, and unknown anonymous marked with the time-stamp clue, and the sincere, the ironic, the insincere, and even historic figures of note, and ‘le tout’ --spiced and peppered with lots of outrage. We have the know-it-alls, and even university quantitative statisticians. But what I find remarkable these last few days on this particular subject, are the gathering and happy hungry vultures who right over the blog want to sell us a house that will consume 30-50% of our income and will hook us up, as Bob Dylan said, ‘to the heart-attack machine.’ Have you no shame? It would appear not.
As you look around at the sub-prime debacle and the national risk —look around, right here among us,you can read the guilty.
response to 7;20 a.m.
What makes you think interest rates are going up?
If you really kept up on the current economic conditions in our country you woukld know that we are headed into a 2 year slowdown which may even be a mild recession. the fed will be lowering interest rates over the next 2 years not raising them. so interest rates on homes will be going down not up. So a buyer with a variable loan will NOT be seeing increases in his payments.
The wholle idea is to buy a home and then 3 years later when ones income goes up to re-finance it at a fixed rate.
Yes prices are falling. so now is not the time to buy. The bottom of the Santa Barbara real estate market is going to be next christmas. In 2009 real estate priuces wull have bottomed out and will start going up. they will then double in the following 10 years. So one year from now will be the last chance for many to evder be able to purchase their own home here in Santa barbara. At that time one will be ablw to buy a 3 bedroom single family house for $700,000, with payments around $4,000 a month including taxes. Ten years after that houses will be $1,400,000 with payments of $8000 per month and way beyond the reach of the middle class.
the bottom line is that it is a fact that a couple who are each making $60,000 per year before taxes CAN AFFORD TO BUY A HOUSE AND MAKE THE PAYMENTS IN SANTA BARBARA AT THIS TIME.
All it takes is:
1. to get a '"stated income" 40 year fixed interest loan with interest only payments the first 10 years and then fully amortised the following 30 years.
2. Make the sacrifice to pay 505 of the family income on house payments.
It will be the greatest investment you ever made because when your house doubles in price from $700,000 to $1,400,000 you just turned your $70,000 cash down payment into a $700,000 1000% profit over 10 years. Thats 100% profit return each year on your money.
p-lus you have just fixed your monthly housing cost forever while if you continue to rent yoiur $3000 monthly rent will double in the next 15 years to $6,000 per month. while if you had purchased yes your payments of $4000 per month are a little higher than rent now but in 15 years they will still be $4000 compared to $6000 rent. so in effect you are paying for yopur house with money that would otherwise be going to a landlord helping HIM to get rich on real estate appreciation. While if you bite the bullet and buy now it is you who will get rich and make the $700,000 profir on your $70,000.
Many buyers borrow the down payment from relatives or even their employer.
And don't forget the income tax savings. they are tremendous!! And significantly help offset the high payments.
Is their some risk? Yes.
But nothing ventured nothing gained.
Do it and you will always be glad you did.
Don't, and you will look back and kick yourself for not buying one year from now at the opportunity of a lifetime!
This is the best financial advice you will ever get and it's free.
Someone mentioned getting on the list for notices of the public comm. meetings, to get the agendas in advance for the planning commission, the ABR, etc. How is that done?
I've looked on the city web site and see nothing there for that?
A friend wrote to the web site/contact asking how to get notices and never received a reply. Makes one think they are not anxious to have public presence and input.
Anyone here know?
don jose 7:59 a.m. :
I disagree with what you just said.
I agree that buying ones own house is the single greatest thing that one can ever do.
But here in Santa Barbara with our high prices the best way to break into home ownership is to first buy a 2 bedroom condo in Goleta and then sell it in 5 years and buy a modest 2 bedroom house in Santa barbara and sell it in 5 years and buy your 3 bedroom dream house.
Working up to what you want in steps is the way to go. that way you get your foot in the market ands share in the appreciation and let your appreciation help you work your way up. also as years go by your salary goes up so you can afford higher monthly payments.
Also your house size goes up as your family gets larger.
Single folks can buy a 1 bedroom condo or two singles can go together and buy a 2 bedroom condo as partners and sell it in 5 years and then each can buy their own condo.
Another good way to go is to buy a place with one more bedroom than you need and rent it out to help make the payments.
I could not begin to afford on my salary to buy the $2,500,00 house I now live in, but I started small at the very bottom and worked my way up. Now, thanks to my sacrifice of paying 50% of my income to buy my own house I have made $2,000.000 profit on my original $10,000 down payment made years ago. I can retire on this and be financially secure for the rest of my life. Plus I had the enjoyment of owning my own home and no landlord to raise the rent each year. Plus I had huge income tax savings writeoffs.
What is wrong with a little sacrifice? Is it better to squander ones income on luxury material possessions. The money has to be spent somewhere. How bertter than on buying one's own house.
Housing is the most basic need.
Now don jose thinks what I did is stupid.
What do you think?
So, I have a question for all you geniuses who are trying to advise on BUYING a house:
How do I sell mine? Any information out there other than from realtors? Just want to know what the public knows.
Thanks for any help.
best financial advice.... the 50 year history of Santa Barbara Real Estate is about 12% a year prior to inflation... takes 6-8 years normally for doubling. We've quadrupled since 1996, in 10 years, which is more like 18%. We are due for a huge correction... prices static or dropping for 6 years or so.
1990-1996 was such a period.
Bottom by Xmas 2008? Wishful thinking, I say.
Interest rates may go down as you say. But they may be increased to keep foreign investment here and inflation down too. Very hard to tell! There are good arguments on both sides.
I tend to lean toward interest rates going up in the next 5 years. The Chinese will want them to keep their dollars here and not in Europe. So I think it is a truly rotten time to buy for the next 5-10 years.
9:40: you got it. The more you know about how the city Community Development dept works, the more the city staff wants nothing to do with you. The more knowledge you gain the less information they want you to have. The more accessibility you request, the more obstructionist they become. You can doggedly pursue the notices of hearings, read (and try to correct) the woefully inadequate minutes that rarely reflect what really happened, and deal with misinformation given by senior staff when they really don't want you to attend. You'll discover a shockingly closed, lockstep system where "why do you want that information when it really belongs to us?" is the corporate culture and customer service is extended only to the select few. I know from bitter experience over several years--including reading in-house e-mails obtained from public records requests--just how little they want the public to know, and how angry and personal it becomes when citizens figure it out. It is pervasive and it requires serious investigation.
The salesmen are making their pitches in that enthusiastic mantra I have heard before. I am sure that they're great salesmen.
It might be the greatest thing ever to buy a house and work your way up the ladder to more and more bedrooms. That's one way of looking at a life.
These salesman have the making of great politicians. No doubt about it.
Let me remind you, I was once the greatest landowner and richest man in Santa Barbara. That was in 1850. I donated Plaza de la Guerra to the city.
Certain truths come to mind. No free lunch. Do you want to make householdery the meaning of your life?
What's the difference between a life well-lived and a house in Goleta? What doors close when you hook up to "the heart attack machine?"
I disagree with those who say it's now easy and smart to buy a house.
The numbers some folks keep using, as has been stated, are the jumbo loans, the ARMs, the zero-down, interest only types, the same exotica that has people, even couple making over $100k combined, in a pinch. These weren't smart, and they're getting harder to obtain as lenders see their own credit lines tightening, and losses building.
On it being a smart investment, or an easy one, because interest rates are going down, there's more to it. The dollar is already at lows against other currencies. Lowering interest rates isn't going to attract foreign investors and boost the dollar.
Buy a house while anticipating lower interest rates when the dollar is so low is expecting a lower return. Investing in companies that derive significant income from overseas, or in foreign companies altogether, is smart. So is putting money into commodities that are rising in value against the dollar. Putting money into a house, and the taxes and maintenance that goes into it, isn't the smartest bet.
Unless you simply want a home, to simply call it your own.
One thing I'd like to know is whether the difficulty in purchasing a home now is the same as it was in the past. Will incomes rise now as they have in the past? Will real estate values continue to rise as they have in the past? Will banks and lenders hand out money as they have in the past? I'm concerned that the jumps made by folks moving up the financial ladder in the past were in part due to the conditions outside of any single person's control. That is, is hard work and belt tightening going to work for folks in the market now as it has before?
Seriously, I don't know. Is the 'able' part of affordability equal in all times, if you could measure it?
If you can't sell you house, it is priced wrong. You need to let go of what you think you deserve and settle for what you can get.
Market price is set between a willing buyer and a willing seller. If you are just a willing seller and there is no willing buyer, then you do not have a market price.
All houses in Santa Barbara are affordable, because they all eventually sell. If yours does not sell, you are unrealistic about its selling price. See how easy this was?
6;13 p.m.
Sorry you are wrong in what you say.
I am an agent and have been CAREFULLY following the price of houses here for 35 years now.
house appreciation is on a 10 year cycle.
the prices double in 7 years followed by a 3 year correction . then repeat this process over and over.
Therefore the true long term cycle is that the price doubles each 10 year period.
this is a 7.2% average annual appreciation and is higher than the 5% per year average that salaries go up and is higher than the 4% per year average inflation rate over the last 50 years.
so over 10 years $40,000 becomes $80,000
the next 10 years $80,000 becomes $160,000 the next 10 years $160,000 becomes $320,000 and the next 10 years $320,000 becomes $640,000. then $640,000 becomes $1,280,000.
Anything more then this is unsustainable. Thats why when prices doubled unusually fast between 2000 and the top of the market which was june of 2005 it was like a bubble waiting to burst and burst it did,
The best kept secret by the real estate agents is that single family houses in Santa Barbara and Goleta priced below $2,000,000 have fallen a full 205 from their peak at June 2005.
They are going to fall in price another 10% during the next one year and then hit bottom next jan 1, 2009. Then they will be flat for one year and then Jan 1, 2010 prices will start the new 10 year cycle and double in the following 10 years until 2020. It is a fact that in 10 years that prices will be double what they are now.
ADVICE;
anyone wanting to buy should wait and buy one year from now!
the most important thing is to not wait longer than that or prices will go ,up and leave you behind.
anyone wanting to sell has 2 choices:
a. price it now at 10% below market for a fast sale because if you price it at full market it is not going to sell at all but will drop in price 10% over the next year while you are trying to sell it.
or
B. hold on and wait and sell it 3 years from now for 10 % more than you can get today.
Good luck to you all.
6:47 p.m.
You are so right on, Jim.
This has been exactly my own personal experience also.
A house is the single greatest purchase anyone can ever make.
Period.
The end.
some of you just don't get it.
it's not about owning a house as a material possession and it's not about owning a bigger house than one needs, and life is a lot more about than money.
there are two points here:
1. That buying a house is the single best way for anyone to build up, a nest egg to provide financial security for their retirement.
there is n o better investment.
2. there are those who would dearly love to be able to buy their own home. It is only these folks who need advice on how they can accomplish that.
It's not about selling YOU a house. it' all about helping those who have already made the decision that THEY ant to buy a house and they don't think that they can afford to do it. They don't know how to do it.
So instead of telling those who would dearly love to buy their own home why would you want to discourage them by telling them that it's not possible or that it's foolish or that they are being materialistic or greedy. message to any out there who would like to buy your own home carefully go ,back and read all complete discussion because there art several posts with some excellent tips. the most important of them being :
Yes, my friend, YOU CAN DO IT. Where there is a will there is a way.
I, personally have helped numerous first time buyers who thought that they could never afford to buy their own place here in santa barbara to achieve their dream and now a few short years later all of these are so very glad that they did because now their house has doubled in value, and they are financially ahead by $500,000. compared to if they had remained renters.
My wife and I make over $125,000, and we will NEVER be able to afford a house in Santa Barbara.
That is until I win the lottery.
Real Estate Guru... take a look at page 11 of the SBAR October 2007 Report.
I don't see your 7/3 cycle. I see prices quadrupling between their low in 1996 and their high in 2006.
By the old rule of 72 that is a 15% or so yearly increase, and is way above your 7/3 cycle of a doubling every 10 years. We're due for a serious correction... could be 10 years of no growth, or a more sudden decline.
Which will it be? Depends on whether the Fed raises interest rates or not, and whether or not inflation comes back. If folks in India and China want higher salaries and if oil keeps skyrocketing, I bet inflation will come back; combined with foreign investors being frustrated at the fall of the dollar, it is likely that interest rates will go back up ot the 10% level in the next few years. But I don't know, this is all speculation.
Here is a nice article by Ben Stein on the mysteries of inflation.
To You Can Have the American Dream... here is a viewpoint that does not agree with you. Actually, you can do better financially by renting and investing well. For the last 7 years or so I've known a few folks who have realized they make more money in the market than they would on their own house, and they've actually done quite well.
So the idea that a house is a good investment is not necessarily right!
When real estate agents talk (or write in this case), they sound so much like evangelical christians.
Heaven is out there. And it is called a house.
To the person making over $125,000 a year, you can afford a house in Santa Barbara. It is silly for you to claim you cannot.
There are other issues you are not disclosing. Please in the future state you do not want to buy a house here; not that you cannot. Because you can.
Please tell us if the real problem is you cannot buy the house you demand you have, instead of the house you can afford.
11:47
it is you who are not right my friend.
House prices here only doubled between the last big run-up not quadrupled as you say.
In order to quadruple a $500,000 tract house would have to go to $2,000,000
$500,000 tract houses did not go to $2,000,000
(they went to $1,000,000.
As for being able to rent and invest and do better: here you are also wrong.
the reason is that when one buys a house one gets the power of leveraging. so when one buys a $500,000 house with $50,000 cash down. the cash invested is not $500,000 but $50,000.
so, when the price doubles in 10 years to $1,000,000 ones $50,000 has grown to $550,000 for a $500,000 profit return on investment.
While if one invested that same $50,000 in stock market ( or other investment) and made 10% each year average profit ( some years go up 15% and some years go up 5% ) Thats a 100% profit or the $50,000 has turned into $100,000 for a $50,000 profit.
But more importantly, when one buys stocks one cannot get a use out of it but when one buys a house one can live in it and enjoy it as it is going up in value.
And the price of rent goes up each year and doubles in 10 years while the payments on your house are fixed.
Then there is the significant income tax savings.
Then there is the wonderful psychological feeling of owning ones own home.
Then there is the factor if one owns their own home they can have 2 dogs and a cat if they want. they can paint a wall purple if they want ---even knock a wall out --in other words freedom to live how they want. They can park a boat in their yard or work on their motorcycle in their yard. all things a landlord would not allow.
and lastly the house investment becomes sort of a forced discipline investment where one has to stay in it. While investing in stocks people don't have the discipline. they end up using the money other ways such as buying a new car, etc. . so the reality is that 90% of the folks are never going to do it.
And lastly there is the matter of retirement. After 30 years the house is fully paid off at the time of retirement and the retired person now has a free house to live in for the rest of their life. as a renter one retire and now still has to pay rent for the rest of their life. and after 30 years their rent has gone up from $2000 to around $5000. just how are they going to pay this $5000 rent for the next 20 years of their life between the ages of 65 to 85.
10;59 p.m.
My friend , if you and your wife are making over $125,000 per year you CAN buy a house here.
The secret is to start modest with a 3 bedroom 2 bath Goleta tract house in a good, safe, clean neighborhood.
These are currently selling for $750,000.
You can pay $100,000 down payment and get a 40 year 6.5% fixed interest "stated income" loan where the payments are interest only for the first 10 years them amortized for the last 30 years. the house payments will be $3500 per month. property tax, insurance and repairs are another $1000 per month for a grand total housing cost of $4500 per month.
yes this is higher than the $3000 rent for a comparable place but in 10 years this house will be worth $1,500,000 and your $100,000 cash will have grown to $850,000 for a $750, 000 profit on your $100,000. this is the best investment that you will ever make. and in 10 years your payments are still $4500 while the rent is now up to $5000 per month. and in 10 years your salary will be up 50% to $85,000 per year.
You and your wife's $125,000 per year is $10,416 per month. after tax with home ownership write-off leaves you $9000 per month.
All it takes is a little sacrifice and pay 50% of your $9000 for housing. this leaves you a whopping $4500 per month for the rest of your expenses. if you can't live on $4500 per month their is something wrong with the way you manage your money,
So don't tell me it cant be done because I have done it myself and seen hundreds of others do it every day.
the difference is that they have the desire, and the will, and the discipline and they are willing to take a small risk and a small sacrifice. But their decision rewards them greatly because in 10 years they own a $1,500,000 house and you are still renting and own nothing.
If one wants to get ahead in life one has to take action, and take advantage of the opportunities. this is the biggest and best opportunity of all.
If you have no desire to get ahead or to own your own home, fine, that is your decision, just don't give me that crap about it not being possible on $125,000 per year income.
Real Estate Guru... take a look at page 11 of The Santa Barbara Association of Realtors October Report.
1995 - median price is $313K
2005 - median price is $1250K
(1250/313) = 3.9936 or 14.8% annual appreciation, not the 7.2% annual appreciation you quote.
But the economist Robert Shiller, quoted in this article has studied the long-term behavior of house prices. He says that between WWII and 2000, houses appreciated at only 5% not correcting for inflation (2% after inflation).
Remember that in a 40-year loan at 6.64% (current jumbo average) you pay a total of $1,860,000 for your $750,000 house. The historical average housing runup doesn't pay you back for this. This is the website I use for the calculation.
Well, Santa Barbara is a bit of an exceptional market, and the data I got from the Economic Project gave a median prices in 1966 (first year they have data for) of $25,462, and then 2006 is $1,262,500.
The long term annual rate of increase is 10%, but between 1966 and 1996 it is 8.8% (lower than historical stock market returns) and between 1996 and 2006 it is 14.6%. We are due for a correction; it is a really bad time to buy. The 1996-2006 runup was not caused by the desirability of Santa Barbara, but by the loose lending practices of places like Countrywide as well as the foreign investment in resold loans. That is not gonna happen again soon.
I can't verify the numbers in your example. Yes on $10,416/month. Taxes in that bracket including everything (Social Security, Medicare, State etc) are more like 25%, leaving $7800/month net. The monthly cost I get from the website previously quoted is $5100month, but then the mortgage interest tax deduction is worth $1000/month. So the couple in your example will spend 4100/7800 or 52% of their net income on housing. They should be saving in their 401(k) at $2000/month. So they'd have $1700/month for all of their expenses, not $4500/month.
It definitely can be done unless they have children.
However, it is quite likely that they will be totally trapped in their house for the next 10 years... the equity will plunge by 40% or and not recover until 2017 or so, and they'll still have a huge debt for a cost they cannot recover by resale.
In the current environment it is definitely worth it to rent and invest the money saved. You must really do the investing though... low cost index funds are a good vehicle. You'll be able to buy (if you want) in 5-10 years when the market bottom is reached.
Another good website on the housign bubble is Patrick's. He is renting right now.
I'd say to prospective buyers... wait, wait, wait. Prices are dropping. Tune out the noise from anxious real estate agents. As the Rotschilds said, wait until there is blood in the streets to make your investments. That's when prices are lowest.
City e-subscription link https://www.santabarbaraca.gov/Government/e-Subscription/
County Planning Commission http://applications.sbcountyplanning.org/boards/pc/cpc.cfm
County BAR http://www.sbcountyplanning.org/boards/rbar/index.cfm
Citizens Planning Association
http://www.citizensplanning.org/
http://www.citizensplanning.org/about/links.html
"most of those losing their homes are cynical flippers and speculators"
This wasn't true when you claimed it in the last thread on this subject and it still isn't true.
Congrats Folks, were #3 on the worst performing RE markets.
Santa Barbara-Santa Maria-Goleta, CA Qtr -4.64, 1 yr -11.63, 5 yr 55.81
Even the 5 yr doesn't look that impressive compared to other much less "desirable" places to live in the country.
This whole bubble was created by banks (and wallstreet) who couldn't make money in the low interest enviroment. So they fired up the home builders with cheap development money and crammed the boiler room phone banks with 20 somethin "mortgages brokers" selling affordable payment 3yr loan products.
All the money was made on "Points".
The "Real Estate Gurus", of course, fell right in line. The higher and more outlandish the price the better. They get paid on a percentage of gross sales after all. Something I never understand...why not a fixed fee? It's a rigged game is why. All up and down the parasitic line.
Now, into this bursting bubble, here we are, arguing about how many more houses we need to build to satisfy the bleeding heart "it's all about the poor" special interest housing groups.
You think UCSB is stopping for one minute to consider the "affordability" issue? You think they care at all about the community degradation they'll be causing meanwhile their poor faculty probably still won't be able to afford the subsidized housing because all the cheap and easy loans are gone?
You think the young 30 something profs the Uni "desperately" needs to expand, will now come into town with the 20% downpayments they'll need to qualify?
When the comming recession hits, where do you think all those undocumented workers are going to go that were building homes and serving the privedged class of soccer moms (and dads) too lazy to clean their own homes and mow the yard.
The new real estate boom in SB will probably be in building homeless shelters...
And all the money big wigs ride off into the sunset with their $100 mill payouts for screwing Main Street, just like the wall street thieves in 2000-02...
Oh, and Real Estate Guru? Your examples are full of holes. Like Uncle DJ said, It sounds more like a RE Shill sales pitch.
You make so many unfounded arguments and presumptions that it is exactly the kind of financial analysis that wipes people out.
Nowhere in your example do you take into account real marginal tax rates, the negative carry cost accumulation (over renting), capital gains tax and most importantly, RE Brokerage cost. I, for example, would have to come up with $130K to pay the sales cost and tax just to move into the identical house across the street.
Nice system you parasites built for yourselves...
Stupid to keep referring to median housing prices. Those are obvious distortions due to the extremely high end homes in the local market.
The only one you need to be concerned about is entry level prices.
If you would spend less time here being bitter and slinging mud at anyone who tells you that people can still afford to buy in this area, you might find your redirected energies lead you to the house you crave.
Key here is to want what you can get; not want what you want but cannot have. You would be whining in a 1.2 median home because it wasn't as good as the top end of the market. All of this is far more an inside job; than the outside conspiracy you claim is working against you.
There are plenty of low-income people smug here because they did work, save and buy. And your complaining is doing nothing to make your life different. Their choices and hard work and risks made their work for them .
Slamming anyone who owns a house here and rich and arrogant is showing how little you know about the facts of the market.
The median is the estimate least impacted by the high end sales. Whatever distortions are there in 2006 were also there in 1996 and 1966, so at least for tracking over time, always using the median is as good as anything.
Entry level prices have crept down because now entry level is a mobile home or a 1-bedroom condo that used to be an apartment. Condo prices are right now falling the fastest, so a new buyer would really be screwed if they bought a condo now.
I hear way more whining and complaints from existing homeowners about their supposed loss of quality of life due to new houses being built. I've actually never heard any whining and/or complaining from folks who argue for new housing and for affordable housing... they pretty much just quote the numbers.
It is a really, really bad time to buy right now. The careful savers and scrimpers should wait a few years, hoard their cash and invest it well, and then buy in about 2012 at the true bottom.
9:53 a.m.
The median prices are misleading because they are distorted by the $5,000,000 houses in Montecito.
a much more accurate way of looking at the appreciation of a tract type house is to follow the SANE house over time. I followed the thew same house from 1960 to 2007 and the appreciation came to an exact doubling in price every 10 years.
I did it again with several houses and it always came out the same; Over the long term houses double here every 10 years. ( yes they go up 120% for 7 years and back down 20% the next 3 year correction ( which usually corresponds to a recession) but the NET average over time is what's important ant that is a doubling every 10 years. What one needs to do is to get a piece of logarithmic graph paper and plot the yearly prices OF THE SAME HOUSE . Then draw a angled up STRAIGHT line across the lower prices and this determines the rate over time of the average appreciation. Yes the prices run up fast for around 7 years and then has a correction back down to THAT LINE and then it repeats itself over and over.
It is the same with ANY MARKET including the stock market. markets always shoot up too fast and too high so there HAS to be a correction occasionally to bring it down to the long term average line of appreciation.
Hope this helps.
9:53 a.m.
When you mention the total of the payments you are forgetting that a large portion of this would be paid out in rent. So this portion is not the cost of the inveestment but the cost of the shelter to house you.
response to 5:24 p.m.
It is you , my friend , not I that are mistaken about the financial benefits of owning your own hame as compared to renting.
I was not making an in depth all inclusive report. Just a few words as they came to mind in the 5 minutes of typing.
What is important here is not the quality of my argument but the reality of the situation. your making holes in my presentation does not change the reality one little bit.
What some don't understand here is that I am not saying what I'm saying to make money for myself or other agents but only to help folks who would love to buy their own home but think that there is no way. All I am trying to do is help them, not hurt them.
I am not trying to make a sales pitch but to simply point out that it often can be done and that for the vast majority of people, who bit the bullet and did it, they have been greatly rewarded financially as well as emotionally.
Now it's true that occasionally someone has some bad luck like bankruptcy and loses their house. But this is 1 on 100.
Please believe me, I really don't care if anyone buys a house or not. I have made so much money in real estate that I'm already fixed for life.
I agree with you that the real estate commissions are way too high. At 1% commission I can make $300 per hour.
And I agree with you that for some it may be the best decision to rent all their lives. And of course I have no problem with that.
Getting back to the subject: I, personally, turned a $10,000 cash down payment in 1975 into a $2,000,000 equity today.
I challenge you or anyone else to accomplish that in any other manner than investing in Santa Barbara real estate for a long term. I have also played the stock market for the same 30 years and I have made 10 times as much in real estate with similar capital to invest.
If I had rented these last 30 years all I'd have is a box of rent receipts, and id have had to pay well over $300,000 more in income taxes over the 30 years, and I'd have maybe $300,000 from investing the excess money I spent over rent, after the difference in taxes.
compared to $2,000,000.
As I said before, I have sole dozens of houses to first time buyers who didn't have any money and thought that they couldn't afford a house in Santa Barbara. I sort of coaxed them into it and now after 5 short years they have turned their $50,000 down payment into a $500,000 profit in equity in their house and they now own their own home and their housing payments are fixed for the next 25 years and in 25 short years their house will be paid off and they can live the rest of their lives for free while you are paying $5000 a month ( then) rent. 995 of them are sure glad they bought even though they didn't think they could afford it at the time. But as their income went up over a the 5 years the payments now are very affordable and are now comparable to currents rents which have gone up 25% in the last 5 years. (while their payments stayed the same)
They are getting wonderful tax shelter from their interest and taxes. they can have a pet if they want and they can add onto their house,paint a wall purple, or park a boat in the back yard if they want. All benefits a renter doesn't have. Plus the benefit if having a place live when to retire or one can sell it and use the money to live on for the rest of ones live. This financial security is worth a lot. Plus the security and peace of mind of never being evicted plus the satisfaction of owning ones own home. "the american dream'.
and lastly by the time your children are grown the house has appreciated so very much you can pull out some of your appreciation in the form of a TAX FREE LOAN and give it to your children for a down payment on their house, as the only way your children can buy a house in Santa Barbara and be here with you in paradise.
Oh. and did I mention the wonderful leverage on their investment that results in the number one investment that anyone can ever make.
The power is not in my words but in the reality of the financial opportunity of a lifetime.
"the proof is in the pudding'
What do you have to say to that.
to 10:19
I disagree with you.
Yes, the median IS always distorted by the expensive houses but not at the same way over time. the last few years the expensive houses appreciated so high that they distorted the median way more than they had before in say 1970 or 1080 or 1990.
there is only one way to really know how middle class houses appreciate and that is to FOLLOW THE PRICE OF THE EXECT SAME HOUSE OVER A LONG 40 YEAR PERIOD. try it and you will see how very distorted it is to use median prices.
According to median prices the Santa barbara house have been flat for the last 3 years, while in reality the prices of a $1,400,000 house has fallen to $1,100,000 and a $1,200,000 house has fallen to $950,000.
It is high end houses that are keeping this reality from the public, and it's a snow job by the realtors.
There is a huge difference between helping someone with real estate advice to figure out a way for them to buy an existing modest house here and to point out the many benefits of owning ones own home and a desire to grow in population and build a lot of new housing.
They don't necessarily go hand in hand.
I , and many other realtors like the city the way it is just find, want to preserve it's wonderful character and quality of life, and don't want it to grow.
Please don't lump us all together. Were not all bad. Our job is to help people. Some of us get great satisfaction out of it.
I've studied the same units over time, 250 of them in the Goleta area. Look at APN 73-280-33 for
example... more than doubled in the 5 years between 1997 and 2002 sales. That is not 10 years.
That is just one example, but I looked at all the units and corrected for people who added upgrades in square feet, bathrooms, and fireplaces.
I see that prices quadrupled between 1996 and 2006.
If there is one Montecito estate that sells one year for $5,000,000 and the next year for $100,000,000... guess what... it will not change the median at all. It will change the *mean* prices a whole lot. But that is why we use the median.
Then, there is still the effect that a lot of new, low-end places that are know on the market that historically were not there in 1966... like apartments converted to condos, and mobile homes. Actually, a lot more of those have come on the market than new $30,000,000 estates in Montecito.
The historical median is quite a good estimator, I have found. And the entry level stuff (like converted apartments as 1 bedroom condos) don't appreciate at all. Add on top of that that quite frequently the homeowner's association dues skyrocket after a few years.
In today's falling market, purchasing entry level stuff for $400,000-$500,000 is not a good idea, and is much more likely than anytime in the last 30 years to lead to financial ruin for new young home buyers.
Much, much better for young folks to rent and invest the difference between their mortgage payment and their rent in a balanced portfolio of stocks and bonds. 5 or 10 years from now at the market bottom, after this easy mortgage loan, Countrywide/Citigroup/SIV/CDO financial disaster has passed, they'll be able to buy at a bargain.
real estate guru...
I doubt you invested the same amount each month in the Stock Market as you paid on your mortgage.
And I doubt you are accounting for your interest payments, property taxes, insurance, and maintainance on your home.
But no matter. A home is not a bad investment; renting and investing, over the long term, is only slightly better.
But right now is a terrible time to buy a home.
to 8:33 a.m.
When I said the santa barbara prices appreciate at the rate of doubling every 10 years I was talking about the last 50 years and the next 50 years. In other words over the long term. what occurred between 2000 and 2005 is an anomaly.
I also said that the 10 year cycle INCLUDES BOTH THE RUN UP AT A HIGHER THAN AVERAGE RATE and the correction time that follow. The general pattern over 30 ,years had been 7 years up then 3 year correction then repeat. Due to the EXTREME and abnormal doubling of prices between 2000 and 2005 it is leading to this correction being deeper and longer than normal.
But it IS A FACT that over the last 49 years including the extraordinary run up of 2000 to 2005 and the last 3 years of correction that the average rate of appreciation has been 7.2% AVERAGE per year which is a doubling in prices over each 10 year period. ( the rule of 72)
So one has to add the current correction time to the last run up to get the overall 10 year cycle.
and of course the cycle is not exactly 10 years . it varies each time but over the last 40 years we have had four cycles with an average of 10 years each. and once again the 10 years is not the length of the run-up but includes both the run-up and the following correction.
the point is that history repeats itself. This correction will bottom in a year and then maybe followed by a flat year or so and then the process swill repeat itself.
it is a sure fact that 10 years from not prices of Santa Barbara houses will be almost exactly double what they will be at the bottom one year form now. it is a fact that there is no better investment than buying a Santa Barbara house at the bottom of he market one year from now.
Ones $100,000 cash down payment will grow to a $1,000,000 profit in 10 years.
it is impossible to beat this investment anywhere else.
Most private investors actually lose money by investing in the market and certainly don't even make as much as the market index .
this is an indisputable fact!
an investment on buying ones own home is the best investment anyone can ever make in their whole life. There is simply none better.
7:32 pm... are you saying that the only invested cash is the $100,000 down payment? No need for regular mortgage payments, insurance, upkeep, and property tax?
Buying low-cost index funds from, say, Vanguard does very nearly match the market indices.
I doubt very much that the market will bottom out in 1 year. The market will bottom out when we are through the mortgage mess and when the US fixes its exchange rate difficulties, to stabilize the flow of investment capital out of the US. That could take a lot longer than 1 year.
Sorry, the 200-year average annual increase of the stock market is 10%, which if I understand correctly, is better than your estimate of 7.2% for the 50-year average of the Santa Barbara housing market.
No-one really gets 7.2%, BTW, because their mortgage interest rate 6% or so, although the mortage interest tax deduction drives the effective mortgage rate down to 4% or so. So effectively the growth is 7.2-4 or 3.2%. Compare that to 10% from, say, Vanguard's total market index funds.... well, less capital gains, which makes it 8.5% from the stock market.
10;54 p.m
I said that $100,000 invested as a down payment in a house will turn into a $1,000,000. You said what about the monthly payments.
Most all the monthly payments including principal , interest, taxes, insurance, and repairs would have to be paid anyway as rent to live in the house. You seem to want to ignore that the house provides you with not only an investment but also provides the house to live in.
While it is true that INITIALLY the monthly payments are significantly higher than rent, what you fail to take into account is that the house payments are FIXED for 30 years then drop to near zero once the loan is paid off, while ones rent increases each year by a compound 5% increase. This means that 15 years down the road the rent now equals the mortgage payments and taxes and the following 15 years after that the rent is much much higher than the fixed mortgage payments. So over the 30 years the housing cost is the same whether buying or renting.
Since most people don't keep their house for 30 years the difference between the monthly payments between buying and renting must be added to the amount invested when calculating the return. But this additional amount is not invested at the start but over time. This factor increases the portion of the gain attributed to the initial investment.
Now the increased cost in buying over renting must be adjusted by subtracting the tax savings obtained by buying a home. this tax saving is so significant that it fully offsets the difference in cost between buying and renting when combined with the factor that rents go up 5% compounded per year.
Now there is the most important factor of all which you don't even take into consideration, and that is human nature. the vast majority of folks just don't have strong discipline for saving or investing. Americans only save 1% of their income. Buying a home is a 'forced investment" meaning once one makes the initial purchase one is forces to make the sacrifice and budget ones money to continue making the monthly future contribution. The reality is that 99% of renters will simply not invest the money that they would have spent on their monthly mortgage payments. Instead of making the sacrifice they will spend the money on material possessions.
this is a fact.
lastly I you said one can invest in an index fund and make nearly the same as the 10% that the stock market goes up. Now the fact is that the vast majority DON'T invest in such index funds and the vast majority make much less than the market index and a significant number lose money in the market.
Now when you say the market appreciates an average 10 % compared to the house appreciation of 7.2% you are absolutely correct. but again you forget the most important factor of all and that is leverage. If one invests $100,000 in the stock market and makes 10% it is $10,000.
if one buys a $1,000,000 house with that same $100,000 it is not the $100,000 that appreciates 7.2% but the entire $1,000,000 house appreciates 7.2% which is $72000. Therefore the $100,000 actually made $72,000 ( 72% cash on cash) compared to the $10,000 ( 10% cash on cash) in the stock market.
Now there is one important factor not mentioned yet and that is time. it is a fact that a leveraged real estate investment is the very best investment that one can ever make IF THE TIME PERIOD IS VERY LONG LIKE 10 YEARS.
Real estate is NOT a good investment for a short time period of less than 5 years. If one is only going to buy the house and sell it in 3 years it is much better to rent.
And I agree that now id not the time to buy. Wait one year for the bottom of the market.
The things that I say I have learned in the trenches, here in Santa barbara, in the school of hard knocks by actually doing it over the last 30 years. I have done these things successfully myself and I have seen others actually successfully do it. So it is not theory but based on reality and fact. The fact is that it is an extremely lucrative investment over a long period of time.
And don't forget the importance of the critical concept that its a forced investment, which would not other wise be carried out if left to the human nature lack of savings discipline.
I hope sharing my insight helps some make this most important decision of ones life. It is a fact that 99% of those who buy a house are glad they did 10 years later. If it were not a wonderful investment this would not be the case.
Plus there are other benefits of owning vs renting such as happiness, security, and the freedom to have a dog or knock out a wall, etc.
It's not the called "American Dream" for nothing.
I'd like to make a big picture point on this soggy thread.
With a tip of the cap to those of you who obviously have some finer points to make than I.
The lenders are into this game on a 30 - plus year basis.
They're going to cry poverty and fire people and beg for the Fed to lower interest and claim they're about to collapse under the mountain of idiots and speculators who took advantage of their good nature.
They'll show up for photo ops with the Gov. and the Pres. and they'll freeze rates on some loans and write off scads of others and take a bow for "Pitching In" during the crisis.
And they'll still walk away with a ton of money over the next 30 years by essentially finding a way to own the equity that individuals are counting on for retirement and investment. They've already beat the cycle.
I don't have the numbers but the lenders do. And they've already done the risk assessment. I'd be willing to bet that if you look at the whole 30 year picture you'll see a very different story.
This article arguing renting is superior address just about all of the concerns you raise, real estate guru. One of the most interesting points is that the ratio of housing prices to annual rent has increased from 9 in 1940 to 20 today... the cost of houses has escalated rather faster than rent.
Let me note some contradictions:
1)Many people around here extol the need for careful, disciplined financial management to achieve Santa Barbara hown ownership. That kind of discipline can be equally well applied to renting and carefully investing the difference between rent and mortgage payments in good investment vehicles like index funds.
2)Most entry level homes in this area, like condos, *do not* allow you to have a dog or knock out a wall. So the `American Dream' you quote does not arrive for people until they are 40 or 50 around here, if they choose the home ownership route, at least in the last 10 years... yes I know a lot of people who have gone through the condo to house transition.
3)A lot of people find they don't like the burdens of real home ownership, like fixing the roof, dealing with bad foundations, etc.
4)As for leverage, remember, most people pay 3 or so times the $ value of the home in total mortgage payments. If you are quickly flipping homes (and lots of people did that) than you don't see that. But if you stay in a home for a long time, I don't think the leverage argument really works.
Still... for a disciplined, careful saver, it can truly be financially superior to rent and invest. This is not widely known and appreciated, because, IMO, frankly, there are a lot of real estate agents who make their livelihood by keeping the word on renting and investing from getting out.
On 12/28 I asked a question about 'selling' real estate (my home) at this time. Well, the subject changed on the blog but I am stunned at what has followed. I did not get a thing out of all the comments. Just one-upmanship and more arguing.
So, I'll keep the house, rent it to either 8 USCB students or 8 illegals and let the chips fall where they may.
Those two groups can afford the rent. They will pay on time. The latter group will make 'improvements' while the former group will trash the place so that group has to pay big security while the latter just pays the rent. Thanks for nothing, people. I'll try to think up something better to ask next time.
Here is a fact if it will help...
4 BR 2 full BA
1/3 acre
nice neighborhood
2100 sq ft
paid $450. 1998
selling now 1.2 myself; Not in MLS
Just under 9 years here; very little improvements.
Is this good or bad according to all the discussions? Not in the mood to ask a realtor.
Group CPA party tonight checked out this site referred by a new home owner after house warming. Everyone wants to comment but I'm the owner of computer so the new owner dictates as follows:
"I closed escrow 30 days ago on a stunning (no work needed) 3 BR 2 BA 15 year old condo 2000 sq ft with yard for my dog plus patio for large hot tub, large bar-b-q and entertaining room. Tiny group of condos. Assoc Fee 200/mo.
Pd 600. 10% down; good int rate when feds started dropping.
I borrowed 25 from my Ira which I'll put back with year end payout and bonus within 90 days, no penalty.
My first home. It can be done and I advise my clients acordingly and share what I did and referred to those who helped me. It's key to find good help in all areas."
(Only because of our business do we sign as anonymous. Sorry.)
Has anyone thoroughly investigated the tax benefits to owning; having a 'sit-down' with even a staff accountant to project how you can afford the payments, the taxes and insurance on top of the mortage?
So many forget to take this into consideration as many are so accustomed to payroll taxes withheld which would radically change with interest and real estate tax deductions.
My question is, what is quality of life? The big sell for real estate and life in SB is quality of life. If you have the money, it is an ideal place to live. No doubt about that. I bought my first home in 1985 I used to be a big proponent of getting a slice of paradise myself until 2 things happened. 1. Prices got out of site and 2. I left SB for other places. I have had lots of time to rethink what quality of life means. There is more to life than an address in an exclusive zip code, especially when striving for that address consumes everything. I love the sales pitches here. Struggle and save for 10 years so you can struggle for another 10 once you buy your 2 bedroom condo. This is paradise?
I have another idea. For those who are looking to invest and build a secure future and actually have enough left over to enjoy the fruits of their labors, the answer it to move away. There are plenty of really great communities across this country where the weather is decent and young professional and real middle class families can easily afford to live. Imagine this: A professional couple moves to a Sunbelt city and makes $100k a year. They buy a nice new home for $200k-$300k in an appreciating area. They can easily afford a 10-15 year mortgage. They also invest the max in their 401k and also put money into savings or invest it, plus have plenty left over to live on and spend. They can easily afford to fly back to CA and visit a couple of times a year, especially if they stay with friends or family. In 10-15 years they will have a enough to put their kids through school, a nest egg for themselves and a paid off house. In the meantime they have been able to afford to do these things and have some fun. Now, if they want to pursue a new life in CA, they can get a good paying job, move back with a huge down payment and their nest egg already in place. Even a couple making half that can make a good life in other parts of the country where new homes start at $100k. The biggest myth being sold to Santa Barbarians is that paradise is worth selling your soul for a mortgage. I have news for you, many Californians have figured out that quality of life is more than a CA zip code and have made the move and found out that they never really want to move back. Besides, from the posts I see here, Santa Barbara doesn't really want you anyway. Why stay where you aren't wanted and can be replaced by part timers to save benefits for business owners?
Quality of life here for me means, even in a small condo:
1. Weather generally mild with low utilitiy costs, allowing a lot of outdoor life and recreation.
2. Small town accessibility to most activities, with little effort.
3. Excellent, low cost adult ed classes year round for new and old interests.
4. Mature vegetation parks, open spaces, and street trees.
5. Downtown and public building excellent aesthetics, open views. (WARNING - MAY SOON BE LOST!)
6. Wonderful public library, extensive arts and entertainment choices with few parking hassles, easy access.
7. Wild country in nothern county less than an hour away. County hiking trails.
8. Good variety of dining choices and fresh food markets.
9. Reasonable quality health care.
10. Civic activism for positive good; conscientious watchdog organizations; government dollars not overtly corrupted; fairly good ratio of tax dollars to services provided; accessible politicians with a little effort, though often not responsive they can be accessed.
11. Good and challenging public higher education; flexible range of private higher education for personal advancement. Good interface between higher ed and community - lectures, activities sports, recreation.
12. Very good local theater, reasonable ticket prices, easy access.
13. Casual clothing dress standards for most activities - low clothing costs and no need for seasonal wardrobes, great thrift stores for very nice low cost choices.
14. Walkable city, sidewalks in most parts of downtown areas; okay public transportation; good downtown public parking at low cost.
15. Community gardens to grow your own food, enough sun for solar power.
16. Reminders just 30-40 miles away how quickly one can lose this hard fought for Santa Barbara quality of life. It is unique here. And it is worth the extra up front costs.
Even a door to a condo opens up this entire list for anyone who makes the initial sacrifice.
This is the perspective of a retired person.
Nice list 7:22
I think what the pols in Sacto and the self centered UC admin doesn't appreciate is that some people are willing to make consumer and career sacrifices to live in an area like this.
When you call a place home, it's surprising what extraordinary things you'll do to protect it. Just ask the folks in Bagdad...
Great list - I'll add one more.
17. Santa Barbara has close access to world travel, linking through SBA or shuttle travel to LAX.
to 3:05 a.m.
I did take the time to answer your question.
maybe you missed it so i'll say it again:
1. This is not a good time to sell your house.
2. In order to sell a house at this time you either:
a. price it at full fair market value but if you do it will take a full year to sell. If prices were to stay flat then you would get your full price. but the reality is that prices are going to fall a full 10% the next year. So at the time you would have sold one year from now your house still will not sell unless you lower the price to the then current full market value. which means you would end up with 90% of the now current full market value.
b. Price it now at 10% below market value and it will sell for that price within a couple of months.
Either way by selling now you only can get 90% of the current market value . and this is already fallen a full 20% from the peak of the high prices which was June of 2005.
ADVICE TO YOU: What you should do is NOT sell now but rent it out and sell it in 5 years when you would get 30% more than you would today. This difference is all profit money in your pocket. You will be something like $300,000 ahead by following this advice.
The bottom of the market is going to occur in one year. It is possible that prices will remain at that low level for a year or two following the bottom. In other words the bottom may be flat and last for 2 years.
But those who say that he bottom may be 10 years from now or that house prices in Santa Barbara are not going to go up for the next 10 years are just pain wrong.
It is an almost certainty that prices of a single family house in Santa Barbara is going to be nearly double of the current price 11 years from now which is 10 years after the bottom which will most likely occur Jan 1, 2009. The prices July 2009 should be 1% or 2% higher than at the very bottom of Jan 1, 2009.
That is nice for those who can afford it. A retired person is fine in a condo. A family of 4 would be compromised and it would be difficult to pay the mortgage, save for retirement and put kids through college. For a couple starting a family and looking ahead to retirement, there are places in this country that have decent weather, the attributes that you listed, more vibrant economies and homes that don't cost $700k plus! There is a reason why SB is called the city of the newly wed and nearly dead, so why not call a spade a spade and encourage young families who don't have extra resources to move where they can afford to raise their kids in a truly family friendly community, which SB isn't. Why keep pushing all this pain and sacrifice crap for years on end, when they can go make their money, put the kids through college, and come back and retire in comfort.
Folks: What it all boils down to is simply this:
make your choice:
1. Rent, have a lifestyle where you are not making a sacrifice if investing in your own home, and 20 years later end up with a box full of rent receipts and $100,000 in net worth from your various savings and investments.
2. Buy, and make a sacrifice of some materialistic spending and have a more simple life, and 20 years later end up with $1,000,000 in net worth from your house appreciation , and now be financially set for the rest of your life. Now you can retire and spend some of that money on some nice trips to Europe and enjoy the fruits of your decision to purchase a home.
so it all comes down to a choice between living it up when you are young and having nothing when you are old. Or living frugally when you are young and having financially security and living it up when you are older. .
6;02 a.m.
You are just plain wrong about being able to move away from Santa Barbara and move back in 10 years with a little nest egg and be able to then buy a house.
The reality is that anyone who ever sells his house here and moves away and comes back 10 years later finds that the house he sold has now doubled in price and that he no longer can afford to even buy back that same house.
EXAMPLE:
1. You own a $1,000,000 house with $100,000 equity and a $900,000 loan. principal and interest of $5000 per month. Property taxes of $10,000 per year.
2. You sell that house , take your $100,000 and move to Idaho. You take a job there which pays 505 of the Santa Barbara salaries ( which is the case)
3. You buy a house in idaho for $200,000 with $100,000 down and invest the other $100,000 in the stock market and get 7% compound return per year.
4. In 10 years you sell your house in idaho that you own $100,000 on for $400,000 and end up with $300,000. Your $100,000 stock has now grown to $200,000.
5. You move back to Santa Barbara with your $500,000.
6. You buy back that same house that you sold which has now gone up to $2,000,000. You pay $500,000 down and your loan is $1,500,000.
Now compare your situation to what it would have been if you had stayed:
1. had you stayed you would own a $2,000,000 house which now has a loan of $700,000 balance and your house payments are $5000 per month and property taxes of $11,000 per year. ( go up max. 1% per year) Your net worth is your $1,300,000 equity ( which resulted from your original $100,000 down payment.)
2. By moving and coming back 10 years later you now own the same home but now your loan is $1,500,000 with payments of $10,000 a month instead of the $5000 a month if you had stayed. and your taxes are now $20,000 per year instead of the $11,000 had you stayed.
Your net worth is now $500,000 instead of the $1,300,000 had you stayed.
So you just lost $800,000 by moving away for 10 years and you doubled your monthly payments to an amount that you would not be able to afford.
So in reality a person who moves back has to buy half the house that they previously owned.
The above is not speculation but fact. I speak from actual experience and actual knowledge. Those with the opposite point of view are just speculation based on theory. I have actually seen the above example, and many many more just like it. Talk to ANYONE who has moved away and them moved back and they will all tell you that when they move back that they can no longer even come close to afford to buy the same home that they previously owned. and most cannot afford to buy any house.
Because the prices here go up $100,000 per year, on average, which is faster than one can make money. If you move away you cannot even make, let alone save and invest, the $100,000 per year that the house you sold is going up in price.
Now to change the subject, I agree that one can move away and have a better life. There is nothing wrong with moving away. The fallacy is to ever think one can ever be able to come back here to live again as a homeowner If you leave you can never come back and buy a house here, and that, my friends, is a fact. ad you will have passed up the opportunity of a lifetime to have bought here while you could still afford it. Coming up in one short year is a window of opportunity of a lifetime, which will be the very last chance that the middle class has to ever buy a house in Santa Barbara and take part in the investment of a lifetime.
Don't let it pass you by.
7:22
I love you.
You are so right on.
Well, inthis impressive discussion there's one aspect of so-called "home-ownership" in SB that has not come up--the subsidized "affordable" housing scheme by which employers, such as the one proposed by Cottage, offer subsidized units for "purchase" as long as the person is an employee. Once the exmployment is over, the person has to leave, even if they have reached retirement and paid off the entire mortgage of the subsized unit with artificially depressed equity opportunity. What sounds good in the short-term will be a nightmare in reality. Too few have recognized how this scheme is great for the company, terrible financiall for the individual.
Real Estate Guru is pretty much right in what he says. All I know is that what he says fits in with my own personal experience.
Here is what happened to me:
As a single man I bought a house here for $250,000 in 1983. I was making $50,000 a year then and I paid $50,000 down.
Now, 20 years later, I am still am still making $50,000 per year, because I only work 20 hours per week. But my house is now appreciating at an AVERAGE rate of $200,000 each year.
In other words owning a home in Santa barbara is making me rich. Very rich! It's all due to the leverage provided on the cash invested the first few years.
It is true that the leverage on the capital does decrease as time goes by but that does not matter. All that matters is that the initial high leverage causes a modest investment to, over 20 years, build up into an investment that then generates $200,000 of money each year compared to ones $50,000 salary.
In other words, the simple act of buying a house in Santa Barbara made me rich. Yes, it was a little struggle the first 5 years, but all it took was a little budgeting and forgoing living a luxury lifestyle for 5 years. It was not that big a deal. It forced me to save when I otherwise wouldn't have.
Now, thanks to the best decision I ever made in my life, I am now set for life and I can live like a king.
My only regret is that I didn't buy five of them and let the renters pay the payments to pay off the house for me, while I got all the appreciation.
3:17pm wow! Where do you put all those $200,000 each year? Does the money well up out of the floorboards of your house, and perhaps you have a pekinese trained to sniff new $100 bills that pop up, fetch them, and put them in bags that you take to the bank?
Do tell how you get that money. Most people I know would have to sell their house to get any of the equity out of it. But you have somehow got a way to get $200,000/year without selling! Tell us!
Broadly, what neighborhood is your house in?
Nancy... what housing in Santa Barbara was not subsidized? Mortgage interest tax deduction, federally subsidized water... everyone has been subsidized here.
But kicking retirees out of their house, that is down-right un-Californian.
If a family of four feels their quality of life is compromised living in Santa Barbara, they they should not be living here. Bye.
Fewer kids means fewer schools, vandelism, noise and nonsense. No one is begging families to stay here.
The quality of life is very high for many people in this town and does not need to be changed.
So complainers, please do move out and leave the door open for more of those who actually like living here the way it is. They find entry level condo living just fine in a town like this. Power to these people.
Interesting to note most of 7:22's list quality of life here features elements that do not further require population growth or even catering to more more housing for the middle class.
Most quality of life issues are fixed values that exist here already. Until more population growth destroys a lot of them.
Time to work backwards and stop growing to protect these values, rather than growing larger forward while hoping these qualities will be retained.
We are doing fine in 99% of our quality of life values, even if we never grow another person ever again. It is natures gifts that make us so special and the heritage of thoughtful planning already done that needs to be preserved and protected.
It is not the gleam in developers eyes or unrealistic socialized utopian visions that should ever define who we are. It is just us, right here and right now that should be our only definition.
Until you can prove more growth will enhance 75% or more of those quality of life values, growth should not happen.
It is in no one's interests to grow simply to allow others to also share this special quality of life and let the developers stick the costs on us while they reap the profits only for themselves.
Let's ask the planning commission to take that list and have each project prove it will increase the quality of life for a minimum of 75% of those issues before they get a permit to do anything.
TO 11:16 a.m. from 3:05 a.m.
Thanks a whole lot. You have more than confirmed my queries.
Rent it shall be.
FYI.. We have a second home out of this place so renting up to 5 years is a great way to go while 'watching' what happens after 2008 election. Like putting money safely away rather than CDs, etc. Nice job and thanks again.
Does anyone have the 'annual income' to 'housing price' ratio at certain points in the last few decades?
Of course it's always been hard. I'm wondering if it might have been easier at some point.
I also wonder if there is a reasonable expectation that prices will increase as much from this point, as they have in the past. Its that whole 'past performance' clause on the mutual funds that gives rise to that.
Someone said a bit about investing in a house versus investing by other means and gives two different numbers for the results after 20 years. Constant investing, maybe increasing with some increases in income, would yield a higher total of invested money after 20 years than the 100k number given, no?
Santa Barbara is not where you get into the housing market. It is where you come, after you have gotten into the housing market.
Sara,
100 comments on one blog must be a record?
5;14 p.m.
I said I am making $200,000 a year on my house appreciation. I didn't say that I was puling it out. I'm going to sell it in 5 years when I retire at age 59, which time I will realize $2,000,000 cash. I am then going to move to Oregon, buy a nice house for $300,000 all cash, buy a new Porsche 911 turbo, travel around the world,and live like a king for the rest of my life.
Now if I wanted to stay here I could get whats called a reverse mortgage where I could pull out $1,000,000 in cash tax free and have no payments. when i dis and the house is sold and the loan paid off, and the excess go to my heirs.
Now 5 years ago I did pull out $100,000 of my equity with a tax free equity loan against the property. I invested it in the stock market, with 50% of in a stock called Taser, which shot up 500% the next year so the $50,000 was turned into $250,000. Then I sold the Taser and lost some money doing day trading, and then bought Qualcom and Apple. Later I sold the Qualcom which was not doing much, and bought Google when it came out 3 years ago at at $90 and it is now up to $600 a share. The second best stock I ever owned after the Taser. The Apple had much more than doubled. I sold some and bought Research in Motion which went way down Friday and I lost thousands in one day. Win some -lose some. But generally I had unusually good luck in picking stocks. (My system was to only buy stocks on the IBD 100 and sell then the minute they ent off the IBD 100. It works quite well.)
I never could have done this If I had not purchased a house. Now besides my house going up in value I am making another $100,000 per year in the stock market, and this money is available to spend. I was investing profits not my life savings. If I had ben investing my life savings I never would have had the guts to buy speculative go-go high flying stocks. Much more risky.
The house I bought was in a very good neighborhood, and that is the key. location---location---location.
12:42 AM -- it is likely close to a record. I think we have been near 130 before during the 2nd District Race and during the height of the News-Press mess.
This post is definitely a record for content, however. The comments are longer and more detailed than I have seen before.
to 11:55 p.m.
I pressed on your link and read the article that says renting is better than buying.
The person who wrote that simply does not know what he is talking about. he is just plain wrong in half of what he say.
Even if what he says applied to most of the country what he says does NOT apply at all to our Santa barbara real estate market.
consider this argument;
99% of those who buy here in Santa Barbara will, in 20 years, build up $2,000,000 equity in their home which is part of their net worth.
99% of those who rent will end up in 20 years with $200,000 saved and invested. which is their net worth. Only 1% of renters will actually save and invest enough to build uop the same $2,000,000.
Conclusion:
those that buy get rich.
those that rent stay poor.
It's as simple as that and this is the reality.
The person advocating to rent and invest is giving "pie in the sky" advice that is going to keep all those who follow this poor advice with nothing but a shoe-box of rent receipts.
Talk about poor advice. Talk about hurting people.
6:43pm horsefeathers. If you save the difference between mortgage and rent, and invest it and your down payment in low cost index funds, you end up with $2.3 million in 30 years. Your $200,000 number is flat wrong. A condo purchase will only get you $1.9 million.
Real estate folks don't want you to know that.
Conclusion: real estate agents and homeowners who love the bubble will say anything to try to keep the bubble going.
7:12 am horsefeathers,
Your assumption is that those that rent are actually going to save and invest.
you ignore the reality that 99% of renters are never going to save and invest and so the vast majority will never get close to your THEORETICAL $2,300,000.
Your whole theory is based on people actually saving and investing. Due to basic human nature IT SIMPLY AIN'T GOINT TO HAPPEN.
My whole point, that you seem to be missing , is that buying a house forces a person to save and invest. So even though buying makes less return than renting and investing it is a better system due to the forced saving and investing feature.
Buying works for 99% of the buyers while your renting renting works for only 1% of the renters.
Now you tell me which system makes the most people wealthy.
7:12 a.m.
What are you a stock broker.
What makes you think that ANYBODY is going to actually follow your advice.
Since the reality is that NOBODY is going to follow your advice nobody is going to make your 2.3 million over 30 years.
Bottom line; Your advice is nothing more than a theoretical what if?
Have you yourself followed your own advice? Tell us exactly how much money you have made by your following your own advice?
I doubt if you have even made $100,000 profit by following your own system.
Over the last 40 years I have personally purchased somewhere around $100,000,000 total stock purchases in around 4,000 purchases of around $25,000 each stock purchase.
Over the 40 years I became an EXPERT in the stock market by actually doing. I made extensive use of both fundamental analysis of the companies earnings and also technical analysis charting and got quite good at charting. I got hooked on the gambling aspect of it and wouldn't give up.
Often my stock went up$10,000 in one day and often it went down $10,000 in one day. I made around $1,000,000 in profits and I made around $900,000 in losses and commissions. But what's important is that my net gain profit over 40 years of extensive investing in the market was only around 1%. per year.
I was able to preserve my capital, which is quite a feat. I know many who didn't preserve their capital, but lost it. I had one stock Sun Microsystems that went from $100 down to $3 when the internet bubble burst.
What a wonderful investment??? Now there's the reality of the stock market! It's no different from gambling in Vegas. Talk about risky! And I knew what I was doing. Anyone who does not know what they are doing will lose his shirt! Remember for each trade one party believes the stock is going up while one person believes it is going down. One of the two is going to make money while one is going to lose money. Those making money (the pros and big boys) are in effect taking it away from those that lose money ( the common man on the street).
12:44am and 10:11pm, gosh, I guess you've never heard of a pension fund or a 401(k).
In fact, in the last 20 years my 401(k) has grown to $1.2 million by investing $800/month. All in low cost index funds.
Sorry if you've gotten caught up in the trap of buying and selling and getting nailed by commissions. Guess you didn't do your homework.
I did my homework as did most of my friends. We read Bogle in the 1980's and put his ideas into practice, and they have worked great.
The simple fact is that over 200 years, the US stock market has returned an average of 10% a year. Period. And there are plenty of investment instruments that allow you access to that 10% with only 0.1% total fees, like Vanguard and Fidelity Spartan funds.
You know, the whole basis of a 401(k) is that people have the discipline to save. And the whole basis of getting rich by renting and saving is discipline too. Are you arguing that discipline is impossible? Hope that, because that is obviously ludicrous.
You guys argue that the only way to have the discipline to save is through a mortgage. Pigwash. Bulloysters. The way to have discipline to save is to make a family budget and stick to it. It is the true American way.
Now I see how this mortgage crisis and housing bubble were caused... real estate agents and bank representatives have a completely skewed view of Americans. They discourage careful financial analysis and planning. That is the real scourge. And secretly they make big profits of of the financial stupidity and gullibility of some Americans.
I say: be disciplined, save money, invest in low-cost index funds, make a family budget, and stick to it. **NEVER, NEVER TRUST THE FINANCIAL ADVICE OF REAL ESTATE AGENTS AND BANK LOAN OFFICERS** They are out to screw you, as the current foreclosure crisis proves.
Lots of the best advice is easy to find and doesn't come from all the phonies in american business: eat your vegetables, take the bus, be faithful to your mate and friends, save money, invest it prudently, exercise regularly, don't gamble, do unto others as you would have done to yourself, avoid fast food. We can add: *NEVER TRUST A REAL ESTATE AGENT OR A BANK OFFICER*.
6;44 a.m.
I'm glad you did so well.
But you , my friend, are the exception not the rule.
Only 1 renter in 100 in this country had the discipline to accomplish what you did.
Yes, your system works! and works great! IN THEORY
only one problem; Only 1 renter on 100 has the discipline that you and some of your friends have to actually follow it and invest $800 per month each and every month.
Also, you forget one other thing. (9% of those who bought a house here 20 years ago made around $1,000,000 on their house and by buying 20 years ago and fixing their monthly payments now their monthly housing cost is around $2000 per month while yours as a renter is $3000 per month for an EQUIVALENT HOUSE, and going up 5% each year while theirs is fixed.
Another pesky fact; There has been more wealth created for individuals in Real estate over the last 100 years than in the stock market.
All the truly rich families in America created their vast wealth by real estate not by investing in the stock market.
the stock market got over it's HUGE bubble and now the real estate market will get over its bubble.
And remember, what makes the price of anything go up is the law of supply and demand. one can always build more companies and create more stock but the supply of land is fixed. They ain't making any more of it. So as the population doubles while the amount of land stays the same, the price of land is going to SKYROCKET.
It's the most basic economics. What do you think the price of land is going to do? Go down? Yeah right!
Now just which one of us is full of bulloysters?
I agree with the person who said: "Those that rent generally stay poor and those that buy generally get rich."
Why would anyone want to go against that reality and that tried and true method.
HEY 6:44 p.m
You say the American way is to save.
What leaf have you been smokin dude?
The american way is to spend every penny you make, not have a budget
and not save a penny.
What world do you iove on anyway? Oh, I know, the world of theory and "what if"?
GET REAL, DUDE!
3:01pm what have I been smokin'?
Good old American abstemious Yankee values, as old as, say, John Robinson.
Spending everything you make without a budget is a fiction foisted upon us by Madison Avenue since 1945, and if you buy into it, woe unto you.
There is plenty, plenty, plenty of land here. Sorry about that. Europeans and Asians come here and it all looks like open space to them. Even downtown Santa Barbara.
The `shortage' of land only comes from our current zoning.
Writ large, real estate has not been a good investment... read Robert Shiller's stuff. Across the US, real estate has just kept pace with inflation.
Now in Santa Barbara, things are different, I'll grant that.
But people who bought entry level Condos *did not* see the kind of gains you are quoting... they did not make $1,000,000 over 20 years. More like $500,000 at most, and in some cases less.
There is the whole argument about what to do with your salary increases. The bottom line remains: stocks return 10%, real estate in SB 7%. Stocks are better.
Uh... excuse me... the richest person in the US is Bill Gates, and I don't think he got rich on real estate. Then there is Warren Buffett. Hmmm.. was Buffett's fortune real estate or the stock market?
No doubt some folks have gotten really rich on real estate, but usually they are developers.
But I don't know what that has to do with real people who are salary-men and women.
For them: the data is, renting and investing gets you richer quicker than buying.
Sure, if you rent and forget to invest, you stay poor.
But renting and investing, you don't. You do somewhat better than buying. Not a huge amount better, but a bit better.
And isn't that a big shock?
6:57
You misunderstood me. I do not advocate spending all one makes. I believe exactly as you do that everyone should save 10% of their income EACH AND EVERY MONTH.
What I said was that it is unfortunate reality, and a FACT, that the average amount saved by americans is 1% per year. Now 50 years ago it may have been 10% and 25 years ago 5%. but each year the amount saved by americans has been going down.
you are right IN THEORY that renting and saving 10% of ones income each and every month and investing is better than buying! We agree on this!!!!
But what you just don't get is that it's just theory because the reality is that americans are only saving 1% of their income. Therefore 99% of all renters will have nothing significant saved up in 20 years while 99% of buyers will have a significant amount.
So the key is that buying is a forced savings program.
The second key is the power of the 5X leverage simply makes ones house appreciation go up three as fast and appreciate three times as much as investing in the stock market.
Are you a stock broker.
Theory? I know a lot of people who have done it in practice.
I'm no stock broker... that is why I use index funds, which if you know anything, pay the least possible to brokers.
It is a fact that the stock market for 200 years has outperformed real estate. Simply a fact.
Leverage, smeverage. You have to pay in mortgage payments 2-3 times the value of the house? Where it the leverage? You pay *MORE THAN THE PURCHASE PRICE!!!* THERE IS NO LEVERAGE!
The concept of leverage works only if you flip houses quickly, and that ain't gonna happen for another 20 years at least.
You've convinced me of one thing: Real estate agents *LOVE THE SPENDTHRIFT HABITS OF AMERICANS*.
That is awful
hey 6:57
I love arguing with you because your arguments are always so weak and full of holes!
You mentioned bill Gates and Warren Buffett to prove that investing in Stock market made more millionaires than real estate.
First of all bill gates didn't make his money by renting , having a job and saving and investing. He made it by starting a software company.
And second, Buffet is just one man out of millions and he also didn't make his money buy having a job, saving and investing in the market.
All that matters is the total numbers. It is a fact that more people made more money in real estate then in other people made in the stock market.
One can't take the total value of the market because that represents the value of the companies themselves and much of that is attributed to the original founders not the small investor who rented, saved and invested.
Also if you take the richest 1000 families in the U.S., more of them made their fortune in real estate as compared to working, saving, and investing in the stock market. yes many wealthy families got rich by starting what ended up a huge and valuable company like Dupont Chemical company but that wealth did not come from working, renting, saving and investing in the stock market.
Lastly I did the math on your claim of saving $800 per month for 20 years and investing at 10%. the total comes out around half of what you claim it does. So I don't believe you as to how much you say you made in the market. I challenge you to meet me somewhere and show me proof as to your investment portfolio balance. You won't do it because you don't have it! You are using only theory not real examples.
6;57
You are only right as to the rest of the country real estate.
Santa Barbara real estate appreciates so much better than the rest of the county that, using leverage, money invested in it over 10 years will result in double the money as compared to renting and saving the difference and investing the difference and the down payment in the stock market.
Your math is wrong my friend.
I've got $100 that says that you are wrong, using Santa Barbara and not the national average home appreciation. Want to take that bet. Want to meet? I can prove to you that you are wrong! You fail to take into account leverage and also the income tax savings.
I
7:51am said:
``All the truly rich families in America created their vast wealth by real estate not by investing in the stock market.''
I merely point out that the top 2... Gates and Buffett... did not make their money by real estate.
Seems to me that disproves the claim about `All the truly rich families'.
Somehow the statement aboout `All the truly rich families' has morphed into `more people made more money' and/or `most of the richest 1000 families.' Pleas provide a reference that supports those statements.
I started in 1987 with $50,000 I had saved up from jobs throughout my life. Put it in VFINX, the Vanguard S&P 500 Index fund, which in actual fact, has made 11.8% over the past 20 years. Then added $800/month. $1.2 million now. Check yourself at:
Investment Calculator
Leverage? What Leverage? If you pay off your mortgage you pay two to three times the purchase cost because you must pay interest. How is paying more than the purchase cost leverage?
9:40 p.m.
You claim to have invested $50,000 in the vanguard S&P 500 index fund in 1987.
Guess what, this fund was not yet in existence in 1987.
A few days ago you claimed to have invested $200,000 in this same fund in 1980 and claimed you had made the exact same $1,200,000.
Which one is it, my friend?
How many of you readers out there think it is neither, but that this is a stock broker with nothing but a theory that the stock market is better than investing in a house using the power of leverage.
9:40 p.m.
O.K.
I'm man enough to give you one.
I made a mistake when I used the word "all" he truly rich. This was nothing other than human error. In my mind I had meant "most". I'm a busy person. I squeeze in the time to send in maybe one reply a day but I always am in such a hurry that I bang out my message as fast as I can type, as the words first come to mind, and very often use less than the proper word.
The whole point here is that our argument has to do with whether its better to buy or better to rent.
If I make a mistake in my choice of word that has NOTHING to do with changing the fact that buying is better than renting.
So if either of us makes an occasional weak argument, or if there is a hole or weakness in some point, we can criticize each others weak argument but this does not change the reality of which is better between buying or renting.
We all agree that renting is better for the very short term. ( under 5 years)
But for the long term we need to take into account the following 4 main features which result in buying being a better investment than renting and saving, for 95% of the population. Buying is NOT for everyone). But this argument is for those who COULD afford to buy and want to know which is best for THEM: Buy or rent and save? It is to them that I speak:
1. We need to take into account the REALITY of human nature that americans are not able to save money and the inherent benefit to buying of its being a "FORCED" saving method. ( Your system is based on your THEORY that americans can and will actually save. The facts point otherwise. For your theory to work you have to change human nature. Can you do that/ HOW? MY system works WITH human nature rather than against.))
2. We need to take into account the income tax benefits of the tax shelter ( yes its a subsidy and a darn significant one) provided to buyers.
3. We need to take into account the fact that the monthly payment is fixed for buyers but keeps increasing 5% each year for renters.
4. We need to take into account the significant POWER of the 5 to 1 leverage that home-buyers get over the first 10 years which allows them to get price appreciation on an amount which is 5 times their cash invested.
Now I know that you are not going to ever change your faulty position and I am never going to change mine, which is the right one. But all that matters is that the readers can see both arguments and make up their own mind . they surely can see that your argument is bases on the theory that people can somehow change their human nature and renters somehow miraculously save while now it is a fact that they are not! and the readers now have been exposed to the power of leverage and the significant income tax advantage that buyers have over renters. And most of all they can be informed how buyers payments stay the same for 30 years while renters increase 5% each year which results that over the 30 years the amount is exactly the same total paid out. So there is no NET excess to save and invest.
Plus the factor that ones house is paid off at time of retirement providing a free place to live for the rest of ones life instead of the uncertainty of just who will take care of you. People are living longer now so face retirement with another 20 years of rent having to be paid. And this rent just keeps on increasing while at retirement many find themselves with a tiny FIXED income.
So, just which one of us is not taking into account all the pesky details and all the pesky reality? I know you are not man enough to admit you just may have been a little bit wrong, by your failing to taking into account all the little details.
Buying is better than renting. We were renters. All our friends were buying so we followed suit. .
My wife and I bought a house in Bel Air subdivision with a nice view about 5 years ago for $550,000 with 10% down. We painted it inside and out. We almost sold it last year for $1,400.000. We messed up big time and didn't take the offer. We are going to sell it now for somewhere around $1,200,000 and take advantage of the temporary lower prices to buy a 40 acre ranch in Santa Ynez with a nice house and barn on it.
This would not be possible except for our buying a house.
I can't imagine anybody saying renting is better than buying. That just doesn't make any sense, when all of our friends made a killing by buying a house here.
I got my university degree in Accounting/ Econ just a little over one year ago, and got my first job here in your wonderful city at a starting salary of $60,000 per year. I was single, 23 years old and shared a 3 bedroom apartment with two friends. I never thought I could ever buy my own place here until I came up with an idea. I recently bought a VERY nice 2 bedroom, 2 FULL bath condo in Goleta in a beautiful development for $600,000. I talked my 2 room-mates into renting the extra bedroom and bath.
Their rent makes half the payments.
I sold my boat, borrowed $50,000 of the $60,000 down payment from my Dad, and got a $480,000 first loan and a $60,000 second loan from the same lender. They called it a 80-10-10 no documentation loan.
The payments take half my take home pay but I'm absolutely thrilled to own my own place here at the age of 24. I am looking forward to my payments being the same for the next 30 years while all of my friends who rent will have their rent go up each year. It will be paid off when I am 54 and I can retire here at 54 with a paid for house and really enjoy life. As my income goes up I plan on making extra principal payments and pay the loan off in 20 years.
The value of my condo has gone down $10,000 since I bought it and I read here that it may go down another $50,000 before it starts appreciating again. But I was glad to read that 10 years later it is likely to double to $1,200,000. I knew going in that buying my own place is a long term proposition so it does not bother me one bit to ride out this correction. As an Accounting/Econ major I know that In the long term I'll be much better off rather than renting.
And this year I wont have to pay any income tax at all due to my interest and tax deduction.
I also enjoy the feeling of happiness, satisfaction, pride, and good self worth that owning my own home gives me.
If i can do it at 24 ANY of you can do it too.
The inception of the VFINX fund was 8/31/1976, the Vanguard Website.
VFINX Price 12/87 - 15.04 (see this link).
VFINX Price 12/07 - 139 (see this link).
Annualized rate of growth is 11.8%.
1987 median home price on South Coast - $260,769. (Source: Santa Barbara Multiple Listing Service).
Latest 2007 median home price on South Coast - $1,260,000 (link to the source at SBAR).
Annualized rate of growth is 8.2%
Condo Market - 6.8% over the last 20 years ($168,900 in 1987, today $630,000).
Investing in a broad market index fund has brought better returns than investing in Santa Barbara South Coast housing over the past 20 years. Luckily I invested in the VFINX broad market fund and turned my $50,000 + $800/month into $1.2 million.
It would be great if you could post the APN numbers of the properties you mention.
It is a simple fact: renting +saving+investing is financially superior to purchasing a house in Santa Barbara. For the rest of the US, the renting+investing is even better, because historically housing prices have tracked inflation. See this link.
One exception might have been flipping houses, but that isn't working anymore. And for every house flip story, there are many more stock market deals that make more money. I don't advocate frequent trading, though. I advocate broad market index funds, because I'm not a stock broker.
There is only leverage if you flip houses. For those of us who stay in the same houses for more than 10 years, there is no leverage.
response to 9:44 p.m.
You just don't know when to give up do you. you lost this argument. Give it up already!
We all agree that renting is better for the very short term. ( under 5 years)
But for the long term we need to take into account the following 4 main features which result in buying being a better investment than renting and saving, for 95% of the population. Buying is NOT for everyone). But this argument is for those who COULD afford to buy and want to know which is best for THEM: Buy or rent and save? It is to them that I speak:
1. We need to take into account the REALITY of human nature that americans are not able to save money and the inherent benefit to buying of its being a "FORCED" saving method. ( Your system is based on your THEORY that americans can and will actually save. The facts point otherwise. For your theory to work you have to change human nature. Can you do that/ HOW? MY system works WITH human nature rather than against.))
2. We need to take into account the income tax benefits of the tax shelter ( yes its a subsidy and a darn significant one) provided to buyers.
3. We need to take into account the fact that the monthly payment is fixed for buyers but keeps increasing 5% each year for renters.
4. We need to take into account the significant POWER of the 5 to 1 leverage that home-buyers get over the first 10 years which allows them to get price appreciation on an amount which is 5 times their cash invested.
Our eaders surely can see that your argument is based on YOUR theory that people can somehow change their human nature and renters somehow miraculously save while now it is a fact that they are not!
Our readers now have been exposed to the power of leverage and the significant income tax advantage that buyers have over renters.
Our readers are informed how buyers payments stay the same for 30 years while renters increase 5% each year which results that over the 30 years the amount is exactly the same total paid out. So there is no NET excess to save and invest.
Plus the factor that ones house is paid off at time of retirement providing a free place to live for the rest of ones life instead of the uncertainty of just who will take care of you. People are living longer now so face retirement with another 20 years of rent having to be paid. And this rent just keeps on increasing while at retirement many find themselves with a tiny FIXED income.
So, just which one of us is not taking into account all the pesky details and all the pesky reality?
9;44 p.m. Hey dude,
I opened your fund link and IT says that the last 10 years the average appreciation was 6.49% per year.
People who bought a house had it more than double so their appreciation on their down payment went up 500% over his 10 year period where your fund went up LESS THAN 100%.
So the last 10 years buying beat renting and investing in your fund by 500%. ( 5 times the return!)
Dude, why don't you take a basic math course. You are embarrassing yourself big time!
Renting, saving, and investing the difference between house costs and rent is financially superior to purchasing a house. Broad stock market funds like VFINX have returned 11.8% per year for the past 20 years, whereas the Santa Barbara housing market has returned only 8.2% (homes with land) and 6.8% (condominiums).
1) Real estate agents argue that Americans are unable to save without a mortgage. I think anyone can discipline to save if they set their mind to it and make a family budget. It is really sad to see real estate agents arguing that Americans are louts who spend ever dollar they have. I and lots of my friends have savings rates above 40% of our gross incomes. The entire 401(k) and 529 industries are based on the premise of disciplines savings... the federal government has given strong incentives for savings, and also for investment through the capital gains tax reductions.
2)No doubt there is the mortage interest tax deduction, but even taking that into account, renting, saving, and investing is still superior. There are incentives to save too... mainly the capital gains tax that can be as low as 5% depending on your income.
3)Rents escalate due to costs that also escalate for homeowners like insurance and maintenance.
4)Leverage only works when you flip houses after a few years, and in a rapidly rising market. For those who buy and stay put for 10 years or more, they pay more than the purchase price through mortgage interest (even including the mortgage interest tax deduction). BTW, no realtors tell you that because of loan interest, you pay $1.2 million for a home with a purchase price of $0.5 million.
You'll have so much money after 40 years of renting, saving, and investing that you can buy a house then if you want to in retirement, or pretty much do whatever you want. I've got $1.2 million after 20 years of an initial investment of $50,000 and $800/month in VFINX.
As for specific instances of some houses rising rapidly and people getting rich, there are more such instances with specific stock. A friend of mine bought $20,000 of Apple in December 2002. Now that investment is worth $540,000.
But I don't advocate speculative stock trading or house-flipping. The average US stock market return for 200 years is 10% a year. The average US real estate return over the past 100 years is 3%. In the last 20 years, the stock market has returned 11.8%, while the Santa Barbara real estate market has returned 8.2%.
Rent, save, and invest the low cost broad stock market index funds. That is the route to riches.
2:12am yup, that fund that you said wasn't in existence in 1987 (but actually started in 1976) only got 6.5% over the last 10 years. Any 10 year interval on the stock market can have less then (or greater than) 10%, but the 200 year average is 10%, according to Prof. Jeremy Siegel of Wharton.
Prof. Shiller of Yale has studied the real-estate market over the last 100 years, and found that it just barely keeps pace with inflation. Santa Barbara is a bit better, of course.
What amazes me is that you totally ignore the cost of ongoing mortgage payments, and only calculate appreciation using the downpayment as the initial principal. I guess that is how real estate agents think, they totally neglect the cost of the ongoing mortgage loan payments.
Real estate agents are partially responsible for the current bubble bursting and the current downturn in housing prices. In fact US housing prices have dropped 10% (including inflation) over the last 15 months. Real estate does not always go up. The Santa Barbara market is falling right now too.
Most likely the US will now re-live the Japanese experience, with falling real estate prices for the next 10 years. Thank you, all you real estate brokers who encouraged use of ARM's and no-investigation no-proof loans.
Here is a summary of what we learned from the previous 100 comments:
1. While it may be a good idea to move away from Santa Barbara and never move back, and it is also a good idea to buy a home here, let it appreciate for 20 years, and then sell it and move away and live like a king someplace else with your $2,000,000 profit, it is simply not possible to move away, save and invest money for 10 years, and then move back here, because the prices of houses go up faster that one can make and save money. You may move back with what appears to be a nice $300,000 nest egg but the price and therefore the loan and the monthly payments and the taxes have ALL DOUBLED while you were away. You now find that you can't come close to buying a house here then.
so if you leave you can never come back again.
2. Renting vs. owning is a personal decision but it's the most important decision that you will ever make as far as your future financial condition.
Buying a house is bad if one is going to re-sell it in the short term. but it's the best investment one can make if one is going to hold it for 10 or 20 years.
The reasons for this are two fold: the power of leverage allows one to have five times he amount of actual capital invested and appreciating. this multiplies the return on the cash by 5. This leverage makes the 7% average annual appreciation of the entire house actually be 35 % annual compound return, as compared to a 105 return for stocks. Under the rule of 72 capital doubles in the number of years that one gets by dividing 72 by the compound rate of return. Therefore capital invested in a house over the long term doubles every 2 years.
While theoretically the stock market goes up an average 10% a year over the long term, as compared to 7% for a house, one has to take into account human nature. It is a fact that only 1% of those who rent and invest ever accumulate as much return on their investments as those who buy a house. human nature is such that they simply spend their money on their lifestyle instead of saving and investing it. The average rate of saving and investment for all americans is only 1% of their annual income.
Conversely 995 of those who buy have just committed themselves to a FORCED savings and investment program for as long as they own the house. It forces them to lead a more frugal lifestyle and thus 99% of ant Barbara home buyers automatically come out with $2,000,000 or so 20 years from now. while only 1% of the renters comes out with the equivalent $2,000,000 the other 99% of all renters end up with nothing but a shoe-box of rent receipts 20 years later. and find themselves facing a rent rate which has gone up 400% while those smart enough to have purchased a home find themselves with fixed monthly payments that have not gone up at all and are now half of what he renters pay for an equivalent house.
Those who bought now find themselves financially secure in their retirement years while those who rented find themselves facing retirement broke and with no financial security, and find themselves having to move away because they cannot afford to retire here.
3. The national collapse in housing prices WILL affect Santa Barbara house prices! In fact we will be one of the ones most affected because houses here appreciated way too fast so they now have farther to fall. there is one exception and that is luxury houses over $3,000,000 in Hope Ranch and Montecito. They will not fall at al and therefore they will hold up the median price and give a false appearance of what is really happening to the $1,000,000 house. There will be many more foreclosures in Santa Maria than here but this is a different subject as to why that is the case.
The bottom of the market will be Jan 1 ,2009 , with the following 2 years being almost flat but appreciating 1% each year. After that is is a sure thing that Santa Barbara house prices will double over the following 10 years.
This means that the smartest thing you will ever do is to save up all your money and buy a house in Santa Barbara 1 or 2 years from now. Don't wait or you will see prices appreciating much faster than you can save money and you will quickly be left behind. this is the very last opportunity of your life to be able to buy a house on Santa Barbara and share in this best investment that you will ever make in your life. It will simply make you rich beyond your wildest dreams. There is no other way of putting it. 20 years from now you will think back and say to yourself; " I'm sure glad I followed that advice I read on Bloga Barbara. It was the best decision I ever made. "
I push buying a house over renting because it has been my experience that the vast majority of renters simply don't save and invest (as they should). I noticed long ago that buying a house is in effect a forced way of savings. In addition to providing shelter and a fixed monthly payment and tax benefits, the power of leverage house becomes a wonderful investment IF HELD FOR A LONG TIME (over 10 years).
The power of time produces simply amazing results in any compound investment where the whole principle and interest is kept in and re-invested each year at a compound rate. As a schoolboy I say the example of how one penny doubled each year, with the new amount left in to double each year, for 100 years, accumulates to something like $1,000,000.
The stock broker who keeps writing in, ad nauseam, and advocating that folks rent and save and invest in the stock market is actually right. IN THEORY. But there is a huge fatal flaw in his argument, and that is human nature. americans simply don't save! this is a fact. The average rate of saving in america is 1% of ones income.
Now this is a national tragedy. Everyone should budget there money and save 10% each month no matte what.
But lets accept reality that they simply don't. So buying ones own house is about the only way one is forced to keep up the investment. Ones house in effect becomes ones savings account.
All I know is that it works and works well! And I am speaking from vast personal experience. Not to brag, but to illustrate from a real life example, I turned a $3,000 cash down payment ( every cent I had in the world) in my first house here in 30 years ago in 1977 into well over $2,500,000 equity at the peak and well over $2,000,000 now. I mention this only as an illustration of just how powerful it is.
Over the last 30 years I only made an average of around $60,000 per year, and if I had rented, saved and invested the difference in my house payment above rent these last 30,years all I would have built up from my original $3000 would be somewhere around $300,000 after taking into account my savings on income tax by owning. And at his time to rent a comparable house would cost me double my house payments.
There is simply no comparison.
Also at this time my house equity is appreciating an average ( when taking into account a 10 year period both the correction years and the appreciation years) of $200,000 per year . So my house, in effect, is making me much much more than my salary. and I expect my equity to grow another $2,000,000 over the 10 years following the bottom of the correction.
The person advocating to rent and save is simply ignoring leverage where for the first 15 years one controls an asset which is appreciating with a much smaller amount of cash. So while the stock investor is controlling say $100,000 worth of stock going up 10% a year the home-buyer for his sam,e $100,000 cash down payment is controlling $1,000,000 worth of house appreciating at 7% per year. So while the $100,000 stock made $10,000 the first year the house went up $100,000 so the $100,000 down payment went up 100,000 which is 100% return cash on cash invested. so the house investment makes 10 times as much as stock the first year ... and this just keeps tight on going year after year where the house investor makes 5 times as much as the stock. The one person advocating, over and over again, to rent instead of buy, tries to allocate the entire amount of the mortgage payment as money invested. THIS IS NOT MONEY INVESTED BUBUUT MONEY PAID AS THE EQUIVALENT OF RENT. While the mortgage is more than rent the first few years, the first few years, the mortgage payment stays the same while the rent increases 5% compound each year which makes the rent 4 times the house payment at the end of 30 years, So over the 30 years the grand total house payment equals the grand total rent. so the payment does NOT negate leverage like this idiot is trying to get you to believe.
9:13pm Sorry, you are missing the point. Rent is substantially smaller than mortgage payments + maintenance + insurance and other homeowning expenses.
Annual rent is about 3-5% of the equivalent purchase cost, while homeowning expenses (after the mortgage interest tax deduction) is near 9%. The point is to invest the difference in a broad market index fund and get 10% return on it. That is better than the historical 8.2% Santa Barbara real estate return and way better than the historical US real estate return.
Purchase costs have run away from rent over the past 65 years. That is why renting and investing is now better than purchasing. This is documented at here.
If you flip houses quickly, the leverage you are talking about does work. Flipping houses won't work for next 10-15 years in the stagnant-falling market we will have. If you stay in your house for about 15 years, renting + investing is superior; the housing purchase costs, huge interest you must pay, and the smaller return on real estate sink you, relative to renting + investing.
You would not have built up $300,000 over the past 30 years. You would have built up several million.
7:36 p.m. The Santa Barbara market is more than a 'little better'. You don't know what you are talking about. give it up. I never heard so much crap from one person in all my life.
Yes the stock market and Santa Barbara home prices both go up around the same 10% per year. But buying a home allows a 10% down payment on a $1,000,000 house to be leveraged by 10. so when the $100,000 invested in the stock market goes up 10% or $10,000. the $1,000,000 home bought with the $100,000 down goes up 10% or $100,000 so the $100,000 in the home just went up 100% DUE TO LEVERAGE while the market only went up $10,000 or 10%.
The simple fact is that one cannot ignore the leverage like you are attempting to do, because it is a reality that completely changes your faulty calculations.
Lastly will you wise up on your insistence to use the entire monthly payment as part of the money invested. Can't you get it through your thick head that if one was not buying that they would nave to pay rent for the house to live in so since the buyer is living in the house the amount that they would have to pay to rent an equivalent house is allocated as RENT and NOT as investment. this changes everything and this invalidated all of your faulty arguments and funny math where you fail to account for the REALITY of leverage and you fail to take into account that living in the house is worth something ( rent) and so this is NOT part of the investment.
I'll say it once more: buying a house is not just an investment but is a combination investment and rent of a place to live. They have to be separated as to which amount is allocated to rent and which amount is allocated to the investment. to fail to do so, as you do, invalidates your whole argument.
i have stated this fact for you 10 times not . why are you so dense that you can't get the reality of it.
It's like I keep saying 2 plus 2 is 4, and you keep saying 2 plus 2 is 3. I never in my life have ever met anyone who was so stubborn as you are when they are proven that they are so very wrong but won't admit it. I'll give you credit for being so bull headed. But I'm even more tenacious than you.
Buy a house in Santa barbara.
Make use of the power of leverage.
fix your payments.
Stay away from the stock market. That is only for the pros. the little guy gets skinned alive.
Never rent as all that gets you is a shoebox of rent receipts.
And last, but not least, ignore the fool. (you all, by this time, know who)
That is the road to riches my friends!
looks to me like numbers guy over in the other thread did leverage right! He knows that 2+2 is 4.
But he forgot the `reverse leverage' of the *REAL ESTATE COMMISSION OF 7% ON THE FULL PRICE*.
If only the down payment matters, why don't real estate agents take their 7% on only the down payment?
The numbers guy proved it with numbers... renting and saving and investing is better than buying.
The real estate guys just keep ranting, never post APNs or give references. Don't trust them with your money! They just want to make themselves rich off of exorbinant commissions!
11;17 p.m.
sorry, it is still YOU who is still missing the point.
The point is that while it is true that the house payments are twice the rent that is only the very FIRST year.
it is a fact that rents increase at a5% per year compound rate. By the rule of 72 the rent doubles in 72 divided by 5 which is 14.4 years. So after 14.4 years the rent is now the exact same as the house payment because the house payment is fixed. Now the following 14.4 years the rent doubles again. Now at the end of 28.8 years the rent is 4 times the amount of the house payment. this last 14.4 years of increased rent makes up for the first 14.4 years when the rent was lower. Therefore over a 30 year life of a loan the GRAND total rent is exactly the same as the GRAND total house payments.
Now, since buying a house is also providing shelter that one would otherwise have to pay rent payments for --the house payments ( which equal the amount one would have to pay to rent the same house over 30 years) are properly allocated 100% as rent living expense and none allocated to the real estate investment.
The investment is the down payment.
The down payment is all subject to leverage. if one has $100,000 and invests in the stock market and makes 10% one makes $10,000 profit in one year. while investing that same $100,000 in a 10% down payment in a $1,000,000 house now controls a $1.000,000 asset. The entire $1,000,000 asset appreciates 10% in one year, not just the $100,000 down payment. So the house appreciates 10% of $1,000,000 which is $100,000 in one year. While the $100,000 profit is only 105 of the entire house it is 100% of the cash invested in one year.
Therefore investing in stock made one $10,000 while investing in a house made one $100,000 or twice times as much. this is due to what is called leverage and since the leverage is a REALITY it cannot be ignored or rationalized away with a faulty argument that there is no leverage.
The leverage is there early on which is a critical factor. Investing in a house makes so much money the first few years that the stock investment never catches up.
Lets look 7 years down the road; A house in Santa Barbara has now doubled ( forget about the national average as we are talking only about Santa Barbara here). so the $1,000,000 house is now $2,000,000. So the $100,000 down payment ( remember the monthly payments are equivalent to rent over the 30 years so are NOT part of the investment) has now made a $1,000,000 profit, or 1000% profit.
While the stock has doubled to $200,000 which is a $100,000 profit which is 100%.
The house has just made you TEN TIMES AS MUCH MONEY AS INVESTING I THE MARKET.
In addition the house has saved you $10,000 a year in income taxes due to the deduction of the interest and taxes. Over the 7 years this comes to $70,000.
the tax saving alone is almost equal to the stock profit. One could invest the $70,000 tax savings in the stock market and accumulate almost as much as the renter who put his $100,000 savings in the market.
lastly at the end of 30 ,years the house is free and cleat while the renter now faces rents of $12,000 per month. this high rent now will eat up all of the money the renter saved in his early years of not buying. so at the end of ones live the renter ends up broke with nothing to pass along to his children. while the buyer now owns a house worth $16,000,000 free and clear to leave to, his children.
My friends there is simply no comparison between buying and renting. That is why 95% of the people who can afford to buy do so. Because of the collective wisdom.
Moral to this story; Never trust a stock broker. Their well known motto is ; "churn em. and burn em."
We have reached consensus, numbers guy has shown renting and investing in low-cost index funds beats home ownership even in Santa Barbara!
Don't be churned and burned by any kind of broker, real estate or stock. Buy low-cost index funds and discipline yourself to save. Use Vanguard's VFINX.
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