A Sky-High Scenario for Local Home Prices
Hardly a business round-table goes by these days that a local employer doesn’t call for cheaper, higher density residential construction to attract and retain companies whose employees are being priced out of Ventura County.
Local home prices are climbing fast. Maybe too fast. Salaries aren’t keeping up. Supply is short, demand is high and there is no end in sight, some say. Jobs are being created faster than homes can be built. Slow-growth policies have made new construction tough. Many executives see all of this as a scary trend.
Implicit in their worry is one big question: How high can prices really go?
Bill Watkins, executive director of the Economic Forecast Project at UC-Santa Barbara, believes he knows the answer. An even-mannered number-cruncher, Watkins last week shared his prediction with hundreds of businesspeople gathered for an annual conference on the county’s economy. The crowd was left speechless.
Home prices will shoot up 57% countywide between now and 2005, Watkins said.
The median price today is $295,000. Four years from now, he said, it will be $463,000.
His projections assume the county’s economy grows at 5% to 6% per year, that no major employers suffer cuts or leave town, and that the nation avoids recession. If the state’s energy crisis blows over, he said, the magic number could go even higher.
In the days following the conference, Watkins’ forecast and its implications have sparked debate among local lenders, executives, real estate agents, home owners and prospective buyers.
Some believe Watkins’ number is right. “I think it’s certainly realistic,” said Jerry Lukiewski, president of American Commercial Bank in Ventura. “You only have to look up the road to Santa Barbara to see that situation. Silicon Valley’s another example.”
Others say Watkins’ figure is way too high.
“I’ve been around 26 years and seen my share of recession,” said Jeff Roundy, a Ventura-based real estate agent. “It’s like a balloon. You’ve got to let some air out or it’s going to pop.”
Mark Schniepp, director of the California Economic Forecast Project, has a more conservative prediction. He believes the county’s median home price will climb about 21%, to $358,000, over the next four years. “There’s a threshold you hit,” he said.
Even so, Schniepp said Watkins’ scenario is worth considering. After all, if he had been asked five years ago whether the median price would climb as fast as it has until now--48%--”I probably would have said no.”
Watkins’ prediction, if it plays out, would be a boon for homeowners such as Brian Peace of Moorpark.
The 40-year-old landscape contractor wants to sell his home and use the equity to upgrade. His wife Renee recently got a job in Santa Barbara and wants to shorten her commute. Last week they looked at a three-bedroom house in the foothills of Ventura with sweeping city and ocean views. The asking price was $489,000.
The couple, who have two young daughters, never imagined they could buy a half-a-million-dollar home. But they saw their equity soar. They paid $250,000 for their 2,100-square-foot house less than three years ago. They are putting it on the market for $350,000.
“They’ve gone up dramatically,” he said. “I found it really hard to believe. But generally speaking, a more expensive neighborhood is a better neighborhood, better schools, better recreational facilities, it’s just better.”
The woman who owns the house the Peaces looked at last week is a nurse in her 50s making $40,000. She bought the house for $70,000 in the 1970s. She watched her home’s value climb to $400,000, then crash when recession hit. She thought about selling in 1997, when the market dictated a price of about $350,000. She has hung on until now.
She plans to take her windfall and move to Florida. “If I stayed in Ventura, I’d have nothing left,” she said. “By selling this and downsizing I’m going to have a little money to enjoy my life.”
Potential for Big Problems Seen
Homes countywide are selling within two weeks of being listed. Demand is outweighing supply. Last year 6,542 homes were put on the market in the county; 6,939 were sold, according to the Ventura County Coastal Assn. of Realtors. In the first two months of this year, 1,155 were listed and 2,375 were sold. Last week there were 907 homes on the market.
Local business experts who own homes concede they too could reap financial benefits if Watkins is right. But beyond their personal wealth, many see the potential for big problems:
First-time home buyers could find it impossible to come up with a down payment. Businesses could stagnate and leave town. Outside companies might choose to ignore the county and relocate elsewhere. College-educated workers could find themselves living two or three families to a house, or commuting hours each day from areas that remain affordable, such as Palmdale.
“If people can afford those mortgages, we’ll be here to make the loans,” said Sue Chadwick, vice president and regional manager for Santa Barbara Bank and Trust. “But I also have to be concerned about who’s not able to afford a home and what impact it will have on business.”
Stephen E. Boggs, president of Standard Pacific Homes in Westlake Village, called Watkins’ predictions “very frightening.”
“It just seems a little hard for me to believe that wouldn’t create a change in the market where people just wouldn’t be able to afford to live here,” he said.
In 1989, just before the last recession hit, conditions were similar, he said. “You could build houses but you couldn’t find anyone to qualify for them.”
Lukiewski said these variables affect business and investors. “It hurts service if employees are driving a long distance. They’re not as motivated or fresh. We may not be as competitive as a business community.”
An irony in this is that the phenomenal performance of the local economy over the past few years has been a significant factor in the rise of housing prices.
In particular, the success of Thousand Oaks-based Amgen--the world’s largest biotechnology company and the county’s largest private employer--and the evolution of the Ventura Freeway as a corridor for high-tech companies have created more local millionaires and, on a broader scale, expanded the number of residents who individually earn more than $75,000 a year.
Elaine Pettersen, president of the county Realtors’ group, had a client in Camarillo who bought a three-bedroom tract house for just over $200,000 in 1994. Last month that owner listed the home for $439,900.
Within a week there were dozens of inquiries and two bidders. It was sold to a woman who works at Amgen, who offered $445,000. She put half the money down using company stock options.
“Amazing, isn’t it?” Pettersen said.
Average salaries countywide increased 11.5% in 1999 and nearly 9% last year. But that is largely because new higher-paying jobs skewed the numbers, economists said. Most workers did not get a 9% raise.
High-paying employers give developers a larger base of customers who can afford new homes costing $500,000 and up, Watkins said. Developers can make more profit building these homes, and many cities prefer this type of development.
By the end of 2000, median family income countywide was $68,500. Watkins predicts that number will climb to $85,924 by 2005. But even that gain is not enough to keep pace with the cost of housing, if his predictions are accurate.
Today, about one in three families can afford to buy a home in the county, according to economists. By 2005, by Watkins’ predictions, that will shrink to 28%. Not everyone sees this as a crisis. “I think there’s still enough lower-priced areas in this county to support labor,” said Peace, the contractor.
But under the scenario Watkins paints, there would be fewer houses selling for less than $200,000, even in the most affordable cities in the county. Oxnard’s median price of $193,100 could climb to $301,500, Watkins predicted. Santa Paula’s median home price could grow from $172,300 to $263,600.
Average Rent Also Predicted to Soar
In Thousand Oaks, where the median home price is $292,600, the figure would rise to $525,700 under Watkins’ formula.
Rising prices often force potential home buyers to rent instead. But under Watkins’ predictions, monthly apartment rents also will get worse. By 2005, the average rent countywide would be $1,631.
One major concern, if Watkins’ estimates prove right, is that some employers will not be able to pay the types of salaries needed to keep pace with housing prices.
“Today you have a lot of long-term residents, families that have lived in Ventura County for generations,” said Dawn Dyer, a real estate consultant who specializes in apartment rentals. “Very few of the next generation of Ventura County residents will be able to live here . . . young families are not going to be able to stay to buy a house or pay $30,000 a year for an apartment.”
Dyer said growth-control laws adopted over the past five years to prevent urban sprawl are also having an effect on housing prices. The SOAR growth-control laws require voter approval for developments proposed in unincorporated areas and outside designated urban boundaries drawn around most cities.
Slow-growth advocates argue the laws have nothing to do with skyrocketing home prices.
“Economic engines operate completely independent of SOAR,” said Richard Francis, co-architect of the measure. SOAR’s effects won’t occur until cities are built out, years from now, he said.
Dyer disagreed. “Just the fact that SOAR is in place puts available, developable land at a premium,” she said. “Then the housing prices are at a premium. The consumer ends up paying for it.”
Realtors and executives alike say Watkins’ predictions underscore their message that county residents must change their attitudes on high-density housing. Cities, they say, must promote affordable housing options, and give developers incentives to build apartments and create mixed-use areas where units sit atop businesses.
Watkins is pleased his forecast has generated so much discussion. But the economist emphasized his predictions are based on assumptions that could change.
No one should panic.
Nor should anyone be overly optimistic.
“The average Joes should not be out there leveraging themselves to get into real estate,” said local banker Lukiewski.
“There was plenty of destruction in the last recession. Too many people think, ‘An economist says the market will go to $463,000,’ and they’re out there leveraging everything to get wealthy,” he said. “It’s not wise. You’re better off kicking yourself later for not having done it.”
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Ventura County Housing
Median home prices, including single-family homes, townhomes and condominiums:
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2000 2005 (estimated) Increase Camarillo $252,900 $394,700 56% Fillmore $182,200 $267,600 47% Port Hueneme $157,400 $248,500 58% Moorpark $256,100 $410,100 60% Ojai $292,900 $479,200 64% Oxnard $193,100 $301,500 56% Santa Paula $172,300 $263,600 53% Simi Valley $227,200 $370,600 63% Thousand Oaks $292,600 $525,700 80% Ventura $229,900 $408,300 78% COUNTYWIDE $294,700 $462,600 57%
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Average monthly rents:
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2000 2005 (estimated) Increase Oxnard $863 $1,243 44% Thousand Oaks $1,139 $2,042 79% COUNTYWIDE $1,009 $1,631 62%
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Source: UC Santa Barbara Economic Forecast Project
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Income Projections
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(Estimated) 2000 2005 Increase Median family income $68,500 $85,924 25% Housing affordability index 31.3% 27.5% ---- Gross county product (in billions) $33.8 $51.6 53%
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Salaries
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Agriculture $21,350 $27,246 28% Retail $21,337 $27,713 30% Construction $37,030 $44,121 19% Public sector $52,354 $65,224 25% Nondurable goods $77,033 $106,410 38% Countywide average $38,797 $51,170 32%
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Source: UC-Santa Barbara Economic Forecast Project
