Californians dreaming of someplace else to live

My attraction to California began fifty years ago. The Rose Parade on New Years Day brought back old memories of deep snow and long pointed icicles hanging from our farmhouse roof in Northeastern Ohio. Watching the Rose Parade was a family tradition for us and millions of others living in the Snow Belt. After the cows had been fed, the porch and sidewalk shoveled of snow and grandma had her New Year’s goose in the oven, we would all gather around our old 12” black and white RCA TV to watch thousands of smiling Californians parading down the sunny streets of Pasadena. I remembered thinking how much fun it must be to live in such a wonderful land of sunshine, palm trees and parades.

The weather didn’t being me to California but our mild climate has been a historic attraction for millions of people from other states. In addition to our sunshine, greater economic opportunities exist here than any other place in the country. The California economy, as measured by the production goods and services, is one of the top ten economies in the world. The state has an abundance of natural resources, our per capita personal income at $39,358 and median family income of $62,000, ranks high among other states, we are the technology center of the world; we lead the nation in agriculture production and enjoy a diversified ethnicity. So why is it that more people are moving out of California than moving here?

Our state’s population is growing. Its growth, according to state demographer Linda Gage, with the Department of Finance, was the result of 200,000 foreign immigrants (that we can account for) and 565,000 new births. The state’s demographics also show that 238,000 souls permanently departed this life, leaving the state’s population just under 38 million. The annual study by the Department of Finance also showed that 89,000 more people moved out of California than moved here from all other states. What’s up with that?

As an example, Los Angeles County increased its population by 91,000 births and an influx of 70,000 new residents from foreign countries but L.A County experienced a net loss of 115,000 residents to other California counties and other states. Since 2000, a half million more Californians have left Los Angeles County than have moved there from other places. Orange County had 22,000 more people moving out then moving in. Despite our lower housing prices, less congestion and a high quality of life, El Dorado County’s yearly population increase of 2,427 was the lowest in recent history, mostly attributed to 2,022 new births. Last year, according to the U.S. Census, California had the nation’s second largest domestic population outflow. The exodus, according to Gage, is in some ways similar to the early 1990s, when a national recession and tumbling housing market prompted 1.2 million people to move to other states.

A record eight million people moved from one state to another last year. Why are they passing on California? Since our current housing market has taken the blame for every social and economic ill imaginable over the last two years, it’s not surprising that some want to blame falling real estate prices for the high number of Californians leaving for other places. But to say Californians are leaving because home prices are falling is over simplifying the underlying problem. Besides, weren’t the high home prices and lack of affordable housing between 2001 and 2005 preventing people from moving to our Golden State?

California is not the only state experiencing increased foreclosures, lower property values and fewer sales. Florida, Ohio, Michigan, Illinois, Nevada and Arizona all have similar housing markets, yet they all reported more people moving into their state than moving out. Has California lost its national attraction and, if so, what can be done about it?

Noted author, former presidential advisor and free-market economist, Author Laffer, recently wrote an article for the Wall Street Journal about the causes of out-migration. The article discusses, why some states continue to attract people while others continue to loose residents to other states. “Former citizens are generally the highest achievers and those with the most wealth, capital and entrepreneurial drive, leaving the state much less economically productive.” Laffer’s new research publication “Rich States/Poor States” is an in-depth analysis of policies, which foster economic growth and prosperity in one state and economic malaise in another. By using 16 variables including: property, personal and corporate taxes, right-to-work laws, education, government debt and tort litigation treatment, Laffer ranks all the states from 1 to 50, with 1 as the best for economic growth and 50 the worst. California ranked near the bottom at 41. Laffer’s findings support the theory that states which keep spending and taxes low, exhibit the best economic results, while states that follow the tax-and spend path, lag behind in attracting people and capital.

Slower growth has its advantages. It allows us to catch our breath between the next sprint. Since the Gold Rush, California has experienced many booms and their subsequent letdowns. It is troubling, however, that California has developed the reputation of exporting more residents to other states than we are attracting. State and local leaders should examine polices that attract wealth, capital and the people who are responsible for bringing them into our state and county.

Builders ger optomistic forecast

If fence-sitting new homebuyers wait much longer for the bottom of the market, it could very well slip out from under them. California's new home market is due to begin its recovery this year, according to the California Building Industry Association.

Now, the housing market won't come back with boom, but the Golden State's new home sales in 2008 will outshine new home sales in 2007. Alan Nevin, chief economist for the state's new home building association, says you can count on a modest recovery in California's new home market this year. Nevin forecasts new, single-family home sales will increase enough in the last six months of 2008 to boost sales to more than 80,000 for the year. Buyers purchased 70,000 single-family homes in 2007.

Condo sales will edge up too. Buyers are expected to acquire 47,000 new condos in 2008, up from approximately 44,000 in 2007, according to Nevin. What's fueling the California comeback? Nevin says California's persistent population growth, shrinking new home inventories and a friendlier credit climate will give more consumers incentives to buy new.
However, before there's another real housing boom in the nation's largest western state, California has to tackle a host of issues. Dwindling land supplies, a gauntlet of environmental reviews before development, and what the association considers "capricious and arbitrary" impact fees all stand in the way of the kind of development necessary to keep prices affordable.
"Making more land available for new homes and controlling fees on homeownership will help stimulate the housing industry and ensure the projected gains in the market are realized and the dream of homeownership and economic prosperity are regained, said CBIA chairman Ray Becker.

For 2008, the projected total 128,000 new home sales pale by comparison to the peak level 213,000 new homes sold in 2004. The state needs to build 240,000 homes per year to develop the kind of affordable housing market that will meet the needs of its growing population, according to the CBIA.

I think the builders are a little too optimistic. Land use regulation will continue to increase and builders will need to pass along the cost of development. County impact fees regardless of their merit seldom decrease. Our current excess of existing inventory will discourage much new construction in the Capital Region.

Mortgage activity picks up.

Here is another item you won’t see reported by the major media. Mortgage application volume during the first week of January posted the sharpest rise in four years as borrowers jumped at falling interest rates, the Mortgage Bankers Association reported yesterday.

The group's market composite index, a measure of home loan application volume, jumped 32.2 percent on a seasonally adjusted basis between Christmas week and the first week of 2008. The last time the index rose this sharply in a one-week period was in January 2004 with a 30.4 percent gain.

By category, the index that tracks refinancings posted the strongest growth, rising 53.9 percent last week. The index tracking purchase loans grew 14.7 percent during the period.
Inspiring borrowers to action was a large decline in interest rates. According to MBA, the average contract interest rate on 30-year fixed-rate mortgages fell to just below 6 percent and the average rate on 15-year fixed loans tumbled to 5.21 percent.

Points, or loan-processing fees expressed as a percent of the total loan amount, averaged 1.1 on the 30-year loans, 1.18 on the 15-year, and 0.99 on one-year ARMs. These points include the origination fee and are based on loan-to-value ratios of 80 percent.

According to MBA, the refinance share of applications increased to 57.7 percent last week from 50.9 percent the previous week, while the ARM share dipped to 9.3 percent from 9.8 percent.The Mortgage Bankers Association survey covers approximately 50 percent of all U.S. retail residential mortgage originations, and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts.

A little good news

The perennial optimism of the National Association of Realtors is finally being rewarded with a little good news for buyers and sellers. Existing home sales rose slightly in November after months of declines, says NAR's latest monthly tally.

Chief economist Lawrence Yun says the upturn was due to the stabilization of markets in the wake of mortgage disruptions earlier in the year, but there could be other reasons -- homebuyers may simply be tired of being scared out of their wits by the national press. How long can anyone remain in a state of panic before they start to ignore the bombs and go on with daily life -- including buying a house?

Existing home sales have stayed in a narrow range following a near-20 percent plunge in September. While Yun says that suggests stability, he credits "near historic low interest rates" and "decelerating price declines, along with a modest reduction in the number of homes on the market." Actually, sales are even better than the NAR reports. Here's why.

As of November, the seasonally adjusted annual sales rate was 5 million units, 20 percent below the 6.25 million units sold by November 2006. That sounds disastrous until you consider that In 2004 and 2005, over one-third of homes sold to second home buyers and investors. And about 10 percent of all buyers were subprime.

By November 2007, the speculators and poor credit risks were driven out of the market. Those were the buyers who wouldn't have bought anyway -- except for the incredible oversight of the banking regulators.

That means the 2007 numbers are comparing favorably to previous years when the market wasn't torqued by unusual numbers of buyers. Driving the markets today are the occupying homebuyers and in greater numbers than during the speculative boom of 2001 to 2005.
If greater numbers of occupying homebuyers are buying, the bottom is here, and there's an outside chance a new boom could explode. Why? Prices are down over three percent from November 2006. Homes to choose from are plentiful at a 10-month supply on hand. The median home price in America is back down to $210,200, only $15,000 higher than 2004. Buyers still believe that a home is a pretty good place to put their money, and even with stricter credit, most can still get in with as little as 5 percent down. First time homebuyers with okay credit and $5,000 in the bank can still get 100 percent financing through the California Housing Finance Agency. If you know of someone who needs a home or a loan have them call or e-mail me for the details.

Time to start promoting El Dorado County

There are a number of theories as to why the real estate market has reversed itself so dramatically since the summer of 2005. One theory is home prices appreciated too high in a short period of time. Between 1999 and 2005 the typical home in El Dorado County doubled in value. Eventually buyers simply said no and quit paying what they considered outrageously high prices. Another theory is builders built too many new homes. The supply of available inventory eventually outpaced the demand, leaving more inventory than buyers. Builders reacted by lowering their new home prices, which subsequently affected the prices in the resale market. Speculators and flippers contributed to the problem, as did lenders with their creative loan programs. Our market correction could be the result of a normal economic cycle or a great conspiracy by foreign financial interest.

I suspect, as with most significant events, our current real estate market is the result of a combination of many factors. Regardless of what single or multiple issues is causing our real estate relapse, it may be prudent to initiate proactive measures to prevent the further erosion of property values, increasing foreclosures and a declining tax revenue.

Traditional market price corrections are usually bad for one party and good for another but they are normal and necessary in a free market. Broad government intervention in a market correction or short-term economic crises usually doesn’t help and in some cases actually exacerbates the problem. This market correction is different and a bit of public tweaking may be all that is necessary to jump-start the real estate market in El Dorado County.

Our local real estate market has already corrected itself from its past excesses. The median selling price for a county home is $100,000 less than two years ago. The selection of homes has never been better and most sellers will assist buyers with closing costs. The state and national economic climate is also favorable for homeownership. Interest rates are historically low, personal income continues to increase as does jobs (albeit at a slower pace) and the best economic measure of all, the gross national product, continues to reach unexpectedly high levels. Since we all understand the financially successful concept of buying low and selling high, why is it that buyers aren’t?

Consumers are suffering from a mental disorder called media-itice. The affliction resulting from four years of being propagandized by the major media and the economic press about the collapse of the real estate, mortgage and credit markets. Beginning in 2003, consumers have been told that the real estate market was: popping, sinking, bursting, plunging, free-falling, imploding, exploding, collapsing and in total meltdown. The mortgage industry has been portrayed as: opportunistic, greedy, corrupt, morally bankrupt and fraudulent. A national news network focuses an entire series on the “National Real Estate Crises.” Congress initiates investigations. Is it any wonder that potential homebuyers are put off from buying a home? Yes, there are some problems but isn’t all the hoopla over a small percentage of troubled homeowners a little too much?

Legislative changes in the mortgage, appraisal and credit industries, insuring market exuberance won’t happen again, will not change consumer immediate attitude toward real estate as a long-term investment and it will do nothing to perk up the county’s housing market. What our current local market needs is a stimulus that will attract homebuyers to El Dorado County.

According to the state Department of Finance, population growth in El Dorado County is the slowest in recent history. Between 2006 and 2007 the county had a net population increase of 1,720 for a total number of 178,689 people. Most of the increase resulted from new births while foreign immigration accounted for an additional 290 area residents and 699 new county residents were the result of domestic migration. At the current estimate of 2.5 people per household and the county’s current homeownership rate, we can assume that new residents purchased only 480 homes throughout the year. That isn’t enough. There are currently 1,450 homes for sale of which 550 are vacant. Having a third of all homes listed for sale, unoccupied isn’t a good sign. We can and should do better.

Anyone who lives in El Dorado County recognizes the benefits. Our quality of life is different in the foothills. Homeownership in the county isn’t a burden, it’s a privilege. We are surrounded with natural beauty and recreational opportunities. Perhaps it’s time for the public and or private sectors to join forces as an advocacy for homeownership in the county. Its charge would be educating potential homebuyers throughout the region as to the benefits of living and working in El Dorado County.

A public/private partnership, similar to an Economic Development Commission, could do much to off set the negative media about homeownership. At the same time it could promote the benefits of choosing El Dorado County as the right place to live. It isn’t only Realtors who have a steak in a healthy housing market. Local merchants, service providers and governmental agencies all should be interested in restoring confidence by promoting the American dream still available in the county.

Potential homebuyers have many choices when considering a place to move. Attracting area residents is now as important to the economic stability of a region as attracting and promoting business or tourism. A Housing Economic Counsel, promoting the benefits of owning a home in the county, is worthy of serious discussion.