COLUMN ONE : Trading in the Golden Nest Egg : Equity refugees from the rat race are selling out and buying homes in smaller cities. Many are avoiding mortgages by paying in cash.


Richard Eisman has three children in college, is without a regular job and lives in an isolated part of central Oregon, far from his roots in Los Angeles. But do not weep for him. He's living like a prince.

His pockets full of cash from last year's sale of his home in the western San Fernando Valley, Eisman has bought a home in a tourist town named Bend that has lots of room and "a view that will knock your socks off."

Welcome to the flip side of the housing affordability problem.

While the vast majority of Californians borrow heavily to finance their homes--or cannot afford one at all--a select and burgeoning group of property owners from California have so much money these days from sales of their previous homes that big down payments are no obstacle and all-cash purchases have become common.

One home buyer in 12 paid cash for an existing home in California last year, compared with one in 27 in 1984, according to surveys by the California Assn. of Realtors, a real estate sales trade group.

This new breed of cash-flush buyers, dubbed "equity refugees," are the lucky ones who reaped major windfalls in California's urban real estate boom of the late 1980s. They are now fleeing greater Los Angeles and San Francisco by the thousands for more bucolic surroundings in the West.

They include youngish urban emigres, like Eisman, who are stampeding into small towns in Oregon and semirural California, where they can buy a home but don't have to worry about finding a full-time job right away.

"Many of the people here don't have to worry too much about working," said Frank C. Ruegg, a real estate broker in Bend.

They also include large numbers of "empty nesters" who are moving by the thousands to burgeoning retirement communities in places like Las Vegas and San Diego. They live comfortably there on modest incomes with low or no monthly mortgage payments.

The new money has breathed life into real estate markets in out-of-the-way places such as Redding, Calif., Ashland, Ore., and Bend, but it has also disrupted the local populace and sparked resentment among earlier arrivals.

Consider Michael McRae, a free-lance writer who moved from Mill Valley near San Francisco to Ashland nearly two years ago so he and his wife could afford their first home. Now, McRae said, his property taxes are likely to swell dramatically because property values in Ashland are rising so fast.

"I'm unhappy (about it)," he said, referring to the continuing stream of new arrivals from California. "I did not come up here to make a real estate investment."

When McRae left California in 1988, the state was in the grip of its second round of blistering real estate inflation in two decades. The first occurred in the mid-to-late 1970s, followed by an equally furious price run-up that began in 1986 and ended in 1989.

In the 1980s alone, median home values more than doubled in the state's major urban areas. A typical home in the Los Angeles area that sold for $101,000 in 1980 is selling for more than $210,000 today. In San Francisco, the median-priced home that sold for $108,000 in March, 1980, sold for $262,000 in March, 1990.

The inflation has catapulted otherwise middle-class homeowners into entire new categories of wealth and status. About one in every three people who sold their homes in the Los Angeles area last year made more than $200,000 on the sale, according to a California Assn. of Realtors survey.

M.G. and Dee Wildrick, both 69, recently bought a house in an upscale retirement community in Oceanside known as Leisure Village Ocean Hills for $252,000--an amount they paid in cash even though neither had high-income jobs when they worked. (She was an office worker and he worked for the post office.)

Most of their wealth came from selling their home in Burbank--bought 36 years ago for $16,200--for $287,000. Today, the couple is living virtually debt-free on an annual income of about $30,000.

"Everything we have is paid for," Mr. Wildrick said proudly. "Our house, our motor home, our car."

The price rises have driven even deeper wedges between the state's haves and have-nots, often within the same family. Parents often find they have more home equity than they ever imagined, while their children are struggling to buy their first home. Today, fewer than one family in five can afford California's typically priced home of about $200,000.

Though recent statistics show that California's total population is still growing, the same numbers indicate that more are leaving the Golden State as well.

More than 300,000 people moved out of the state last year, about 6% more than in 1988, according to the state's Department of Finance, which tracks the figures through driver's license address changes. The most popular destinations included Washington, Nevada, Arizona and Oregon.

The outflow has Bend--a tranquil resort town only a few years ago--in the grip of a real estate and construction boom that is driving up rents and property values as much as 2% a month and putting a severe squeeze on the paychecks of local residents.

The outward migration is also having tsunami-sized ripple effects on California towns like Redding, about 120 miles south of the Oregon border. Local real estate brokers say equity refugees have flooded the area in recent times.

About one in five homes in Redding and surrounding Shasta County were paid for in cash during the first eight months of last year, according to figures from TRW Real Estate Information Services in Anaheim.

"We hear that in certain subdivisions in excess of 50% (of the buyers) are paying cash," said Redding real estate broker Richard Downs.

Paying cash for a home has both advantages and disadvantages, and the final decision is usually a blend of emotion and economics that varies according to the wealth and age of the buyers, financial experts say.

All-cash buys are not that attractive to wealthy younger buyers, who want the generous tax breaks afforded by interest expenses on home loans and do not want their money tied up in a single piece of real estate. It might be invested more profitably elsewhere, and there is always the danger that an earthquake or real estate price collapse could seriously undermine the home's value.

All-cash purchases are a very attractive option, however, for security-conscious retirees living on fixed incomes who don't want to worry about monthly mortgage payments. Because they are usually living on lower incomes, retirees don't usually covet the tax deductions either.

"What it comes down to is that people make decisions on what is going to make them sleep at night," according to Jan Nottingham, a financial planner in Los Angeles for IDS Financial Services, a subsidiary of American Express.

Paying cash for a house is particularly common with retirees who remain haunted by memories of the Depression, when families lost their homes in the aftermath of the 1929 stock market crash.

That financial catastrophe 61 years ago is one reason why retired Redondo Beach physician Edward O. Mitchell and his wife, Barbara, decided to pay cash for a $432,000 home in Leisure Village Ocean Hills. Dr. Mitchell's father lost the family home in Indianapolis after suffering heavy losses in the crash.

"We both went through the Depression and we don't want any house payments," said Dr. Mitchell, who turns 70 next year.

People like the Mitchells, though, often pay stiff taxes on profits from property-value increases when they buy less-expensive retirement homes. This is common with empty nesters who "trade down" in the market because their children have grown and they no longer need large homes.

Though homeowners 55 or older are entitled to a one-time exclusion from tax of up to $125,000 of profits from property appreciation, taxes can still be fearsome because home values have risen so dramatically. The Mitchells had to pay taxes of nearly $215,000 on property appreciation of more than $1 million on the Palos Verdes home they bought in 1971 for $100,000 and sold 18 years later.

It is generally a younger breed of buyer who is moving to towns like Bend, and they're typically seeking relief from the congestion of a San Jose or an Orange County. They often have lots of money to buy a home, but no full-time job.

Situated on the eastern edge of the Cascade mountains, Bend is a town of 50,000 and growing fast because real estate investors view property values there as big bargains. Bend bills itself as an undiscovered fishing and skiing playground that has a dry sunny climate and dramatic mountain landscape.

One real estate developer from Orange County, David Madrigal, has acquired a dozen single-family homes in Bend now occupied by renters. "The real estate values are just playing catch-up now," he said. "They're so far behind California."

Locals worry that Bend's most precious attractions--clean air, lovely surroundings and gentle lifestyle--are being compromised by the growth surge. The air is getting dirtier and traffic on summer holiday weekends is virtual gridlock, choked with cars, campers and logging trucks, locals point out.

"We're at risk of jeopardizing the very reason why people from Los Angeles come here," said Gregory Cushman, publisher of the Bend Bulletin newspaper.

To the new arrivals, though, Bend is Paradise Found and a stark contrast to life in urban California.

"They're tired of the rat race," said real estate broker Ruegg, himself an urban dropout who moved from Contra Costa County near San Francisco seven years ago. "They're looking for a way out, and they can afford it."

When Eisman and his wife, Ellen, left Los Angeles behind, they bid adieu to his insurance business in Woodland Hills and her practice as a psychologist. Neither had a job when they arrived in Bend last year.

What they did have, however, were proceeds from the sale of their $644,000 home in Calabasas, which helped Eisman assume the role of real estate investor. So far, he bought a spacious $280,000 home with a large down payment and financed five other investment properties as well.

In the meantime, his wife is working again and Eisman is doing insurance consulting work.

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