Wednesday, January 19, 2005

Housing bubble vs. the train

Santa Maria Times

What's going on with California's housing bubble? A better question might be, what happens when a bubble is run over by a freight train?

We're referring to a set of circumstances that shows all the signs of becoming a train wreck, especially here in Santa Barbara County, which recently earned the dubious distinction of being the state's least-affordable place to live.

Each month, the California Association of Realtors evaluates and rates the regions for affordability. Based on Santa Barbara County's median-priced home, and factoring in the median annual income of local residents, it turns out that just 7 percent of the county's residents make enough money to buy a home here.

The prices are truly staggering, particularly on the South Coast, where the median-priced home is $1.175 million. We're not talking about estates in Montecito, either, whose prices now look more like the annual budgets of some Third World nations.

Up our way the prices are a little better. The North County median is just under $430,000. The countywide median is $668,750 - and counting.

Experts don't see the real estate bubble bursting, at least not in the near term. Housing supply is limited, mortgage rates remain low and the buying public is eager for home ownership.

But it won't be easy if you're house hunting. Buying a median-priced home in the North County, for example, putting 5 percent down, is still going to cost you nearly $3,500 a month in mortgage payments. You can lower your monthly debt by coughing up more cash in the down payment, but the fact is that those big monthly payments will be daunting.

The train wreck is that too many working families are priced out of the market. There is a growing list of anecdotal stories of companies and institutions that recruit a top-notch job candidate, only to have the prospect back out when he or she takes a close look at local housing costs. At some point, what is a dream for local homeowners turns into a nightmare for companies and institutions looking for quality people to join their teams.

The obvious solution is to pay higher salaries, but that's not practical when you're talking about tax-funded public institutions. There will come a time when local businesses, governments and school districts will not be able to compete for quality employees against regions where housing is a realistic part of the recruitment package.

The only way we can see to avoid the train wreck is for governments to get more cooperative about approving housing for low- and middle-income workers, and for homeowners to be more tolerant when such project proposals are made.