Buying frenzy drives prices up
The median price of a single-family home on the South Coast of Santa Barbara County has reached the $1 million mark the highest in California.
The expectation of higher interest rates this summer has created a frenzy in the past several months, as buyers rushed to enter a heated market for fear of missing out.
Desperation-fueled buying pumped the South Coast median to $1.1 million as of May, the California Association of Realtors reported Friday. Year-to-date figures, the best indicator of home values, put the South Coast median at $1 million.
"The equity gains are like Monopoly money. There's so much of it to play with now," said Bob Stevens, manager of ReMax in Montecito.
"There's a lot of moving up, moving down and moving out." Real estate experts don't expect the popularity of Santa Barbara property to fizzle anytime soon. Economists say the incredible demand for homes in California and in areas with low inventories such as the South Coast should push the price of real estate higher in coming years.
Wealthy baby boomers looking to retire and a healthy supply of rich celebrity types from Los Angeles will fuel the demand for million and multi-million-dollar properties, many say.
A median marks the point where half the homes on the market sell for more and half sell for less. In a community where middle-of-the-road-properties such as 40-year-old tract houses on the Mesa or in Goleta now sell for seven figures, ordinary working people are finding themselves transformed into "equity millionaires."
But the million-dollar median is a double-edged sword; the gains of homeowners can block entry for those struggling to buy their first home. Many of the newly minted "equity rich," who tend to be older couples, find themselves trapped in their current homes because if they buy a new house, they'll incur a much higher property tax bill. Meanwhile, younger people and families have to leave the area in order to realize the dream of home ownership.
"Super-high housing prices fracture the social structure of the com¬munity. That puts the diverse ethnic and age structure of the community at stake," said economist Mark Schniepp of the California Economic Forecast.
Many of those who cashed out equity gains by selling their homes have "traded down" into less expensive properties.
That was the case for Asger Pedersen, who sold his home in Goleta two years ago to buy a brand-new home in Santa Maria.
He and his wife purchased a four-bedroom, three-bath house in Goleta in 1983 for $179,000.
"That price was unaffordable even back then," said Mr. Pedersen, who is an accounts payable manager at UCSB. "The incomes for the area were way behind housing costs. So that hasn't changed."
Although the median family income on the South Coast has more than doubled from about $34,500 in 1982 to nearly $77,500 in 2004, the median home price jumped from $142,000 to $1 million, more than a seven-fold gain.
Over the years, as the Pedersens watched their equity grow, they refinanced and borrowed money against their home to cover a variety of expenses, with "some expenses more justified than others," Mr. Pedersen said.
In 2002, after all their children had moved out, the Pedersens decided to sell their home to get out of debt. Their Goleta home brought them $650,000. They still have a "small mortgage" and Mr. Pedersen commutes to Santa Barbara for work, but over all the move was worth it, he said.
Many first-time homebuyers say they believe a longer commute is a worthwhile trade-off that allows them to buy a lower-priced home in the North County.
Todd Ranney, president of the Lompoc Valley Association of Realtors, said he has seen more buyers coming from the Santa Barbara area this year to purchase a home in Lompoc.
"Most of them are first-time buyers, and they come up here because it's where they can afford to purchase," said the Lompoc native.
With $400,000 two-fifths of the median for the South Coast a buyer can find a 1,300-square-foot home with three bedrooms and two baths in a nice neighborhood, he said.
"People are willing to put up with a commute to be homeowners. Once they're here, they find they enjoy living here much more than they originally anticipated," Mr. Ranney added.
Those determined to stay on the South Coast discover that financial help from relatives is often crucial to opening the door to home ownership.
Chris and Stacey Ritter, who bought their first home in April, wouldn't have been able to do so without help for the down payment, said Mrs. Ritter.
"My husband's parents helped us with that," she said. "They basically gave us our inheritance early."
However, even with a down payment in their hands, the Ritters still found it difficult to buy because of competition from other eager buyers.
"When we were making offers, we were floored by the number of other offers that were made at amounts over the asking price," Mrs. Hitter said.
The Ritters, both in their mid-30s, knew it would be a challenge to find a. home they could afford, but they felt they had an advantage in that they. didn't have children and weren't planning to have them. Still, it took the couple more than a year to have an offer accepted.
Their real estate agent, John Bahura at Century 21 A Hart Realty in Santa Barbara, helped them find a condo before it was listed for sale. The Ritters made an offer for $449,000 on a one-bedroom, one-bath condo. Their offer was accepted because they were able to close escrow in less than a month.
"It's just so frustrating that there are plenty of homes available for the affluent in this community and those with low income get a lot of help. But young professionals who are vital to the economic growth and security of a community have no place to live," Mrs. Ritter said. "Several of our friends who wanted to start families or those with young children have had to move out of town to be able to afford a home."
Ironically, those who own rental properties have felt the pinch of people leaving town because of sky-high home prices.
In recent years, rental rates have flattened or dropped and vacancies have crept up to higher than normal, said Leon Lunt of the Santa Barbara Rental Property Association.
More people have purchased homes in recent years intending to rent them, he said, increasing the supply of rentals, which contributes to flat rents.
The housing frenzy has created opportunities for new businesses wanting to take advantage of the market EquityMates in Carpinteria, for example, matches potential home buyers with investors who'll provide a down payment in exchange for the right to share gains in equity.
And it's no coincidence that luxury bath fixture supply company Waterworks just entered the Santa Barbara market by opening a store in Montecito. The company, which sells bathroom sink faucets for about $1,200, sees plenty of opportunity where, there's no shortage of million-dollar homes.
"There is a tremendous amount of wealth in this community, and many expensive homes. Those are characteristics the company researches carefully to determine its store locations," said Eric Carlson, general manager of the local Waterworks store.
First-time homeowners who buy at the low end find they quickly reap financial benefits.
"People used to tell us, If you have to eat macaroni and cheese every day in order to make your mortgage payments on a house in Santa Barbara, it will pay off," said new homeowner Mrs. Ritter.
"Now that we have a home, we have a sense of security that being a homeowner provides," she added. "Because we own in the Santa Barbara ZIP code, we now have a more secure financial future that will provide benefits for the rest of our lives."
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