What Makes a Livable City?

So the other day I was reading a column at SF Gate titled “Big city blues . . . Could a more affordable life, away from the Bay Area, actually be better?” The author Rob Baedeker ponders in a break up letter why it would be good to leave and he interviews two people that have moved from urban life to the smaller communities of Bend, Or and Madison, WI. (Link to column)

Much of what Baedeker writes about is affordability and the cost of living in the Bay Area. In Alameda, where the median home price was $520,000 last month this is a question I am sure many of us has asked. It is not cheap to reside in our Island paradise, and with the looks of the State and Local budget it appears there will be no relief in the future.

But what are the options? I have lived in the Bay Area since 1976 and Alameda since 1977, and I could not image living anywhere else. There is so much to do and be a part of and trading this life for another community would be hard to do.

A little later in the same day, I came across Yahoo! Real Estate’s Best Bang-For-The-Buck Cities. The Forbes list consisted of (Complete List):

1. Omaha-Council Bluffs, NE-IA Metro Area
2. Little Rock-North Little Rock-Conway, AR Metro Area
3. Jackson, MS Metro Area
4. Des Moines-West Des Moines, IA Metro Area
5. Augusta-Richmond County, GA-SC Metro Area
6. Wichita, KS Metro Area
7. McAllen- Edinburg-Mission, TX Metro Area
8. Chattanooga, TN-GA Metro Area
9. Colorado Springs, CO Metro Area
10. Ogden-Clearfield, UT Metro Area

and CNNMoney also has a Best Places to live list:
1. Louisville, CO
2. Chanhassen, MN
3. Papillion, NE
4. Middleton, WI
5. Milton, MA
6. Warren, NJ
7. Keller, TX
8. Peachtree City, GA
9. Lake St. Louis, MO
10. Mukilteo, WA

Not sure if the stars were aligning trying to tell me something. When you look at recently sold home in Omaha, three bedroom, three bathroom 2,500 square foot home for $175,000. A monthly payment around $700 and lower property taxes. It sure makes you think.

I am sure all of these places are special, but first glances none are near the Ocean. This is big strike against them since I love to sail, and not on a lake. Most are in the middle of the country where the cost of living is less, but from what I can tell my heating bill (just not this week) would be a lot more. Also without a municipal owned electric provider I am sure I would pay more for in the summer for air conditioning.

So for now, I will pay what is necessary to live in good old Alameda but at some point I am sure I will begin to wonder like Baedeker,

Dig Deep If You Want To Own A Home

The US Census Bureau released 2008 data on Monday that shows that housing is getting less affordable even though the country and the Bay Area have seen home price drop over the last year few years and continued to decline.

The numbers are staggering, with more than 40 million homeowners spent 30% or more of their household income on housing costs, an increase of 600,000 more families from 2007. The survey includes homeowners and renters and it revealed that there was an increase in renters in 2008. That should not be surprising since thousands have lost their homes to foreclosures and they still need a place to live. Many former homeowners have returned to renting this is reflected in a 142,000 drop in home ownership.

In the Bay Area, nearly half the renters and 53 percent of the homeowners spend more than 30 percent of their income on housing. Even with the high cost of housing, the Bay Area income is also higher. Places like California's Central Valley have higher numbers of renters spending a large portion of their household income on rent with Fresno at 57.2% and Modesto at 58.1%. Miami led the country of homeowners that spend 57.2%. Los Angeles followed closely behind at 55%.

According to the book "Housing America in the 1980s" by John S. Adams rent in the West was 22% in 1970 and 28% in 1980 of household income. Homeowners with mortgages in 1980 spent 19-20% of gross monthly income and houses without mortgages 10-15%.

San Francisco-Oakland-Fremont, CA
Renters spending 30% or more -- 49.5%
Homeowners spending 30% or more -- 53.0%
Renters spending 50% or more -- 25.1%
Homeowners spending 50% or more -- 23.4%

According to the USA Today Story that ran this morning:

Nearly two in five homeowners with mortgages and half of renters paid 30% or more of their before-tax income on housing costs, which is the limit the government sets for determining that housing is unaffordable, according to an analysis of Census data done for USA TODAY by the Joint Center for Housing Studies at Harvard University.

The basis for housing costs for homeowners include mortgage payments, taxes, insurance and utilities. Renter costs include rent and utilities, if they are paid separately.

Here in Alameda the August 2009 median home price of $505,500 require the following for a homeowner. (All numbers are estimated)

Down Payment (10%) -- $50,500
Mortgage (30 year) -- $2,442 month; $29,304
Taxes -- (Annual) -- $6,318
Insurance (Annual) -- $1,200
Utilities (Annual) -- $1,800

Total Annual Cost -- $38,622

The net income a household would need to be right at 30 percent level is $128,740. When you account for Federal (33%) and State (9.3%) taxes the gross household income needs to be well over $220,000.

These numbers are nothing new for those that live in California and in Alameda. We all know that it is a struggle to pay for a place to live and if you want to own your little piece of the Island you will have to dig deep into those pockets.

Alameda Housing Nearly Twice Equilibrium

Mike McMahon sent me an interesting article on a new method of measuring home affordability. The Sacramento Bee article is based on a study that tries to find an assumed "equilibrium level" of 15-to-1. This is the ratio of a home's cost and over the rental income the property could produce. The report was released by the Washington-based Center for Economic and Policy Research and the National Low Income Housing Coalition.

The example the Bee uses is, “a $150,000 that could rent for $10,000 a year is said to be in equilibrium. Any ratio above 15-to-1 is deemed inflated. In cities with those higher ratios, the report contends, renters are less likely to take the plunge into ownership”

The best way to look at this in Alameda terms is to reverse the equation and look at rental rates then look at home prices.

Below is a chart of the 15-1 ratio.

. Rent Annual Income 15-1 Ratio . $2000 $24000 $360000 . $2100 $25200 $378000 . $2200 $26400 $396000 . $2300 $27600 $414000 . $2400 $28800 $432000 . $2500 $30000 $450000 . $2600 $31200 $468000 . $2700 $32400 $486000 . $2800 $33600 $504000 . $2900 $34800 $522000 . $3000 $36000 $540000 . $3500 $42000 $630000 . $4000 $48000 $720000 . $4500 $54000 $810000 . $5000 $60000 $900000 .

Based on a quick check of Craigslist, three and four bedroom homes rent on average $2,090, from July 27 to August 10. The low side is in the $1,500 range and the high side as just over $3,000 per month.

Base on the rental rates there are three homes that fit into the 15-1 ratio.

The current active inventory of 159 home has an average list price of $686,000. Based on that number rental price would have to be at over $3,500 per month. The ratio for Alameda is 27.35 to 1 nearly double equilibrium.

As expected, cities close to the coast had higher ratios than those inland. According to the Bee article San Jose is the least attractive market for renters with a ratio of 29.4-to-1, even though declining home prices have dropped it from 35-to-1 in the past year. The study also lists the San Francisco-Oakland area (23.7-to-1) and Los Angeles-Long Beach (21.5-to-1) among the metropolitan areas with particularly high ratios, as well as San Diego (19.3-to-1), and Ventura (20-to-1).

Inland regions, where home prices have dropped more dramatically, have edged into the area of relative affordability including Riverside-San Bernardino (13.7-to-1), Bakersfield (14.7-to-1), Modesto (15-to-1) and Stockton (14.2-to-1). Fresno almost made the cut at 15.8-to-1.

The take away for me is you just do not buy in Alameda because it is affordable; it is the lifestyle choice that you pay a premium for in selecting a place to live.

Today’s Inventory Data: Just a quick note on inventory. Inventory has declined for three consecutive weeks and dipped below 160 units.

. 8/9/2009 . Total 159 . 94501 122 . 94502 37 . SFR 99 . Condo 36 . Multi-Family 22 . Short Sale 17 . Foreclosure 13 . Price Reductions 59 . High List $1,987,000 . Low List $224,900 .

California Homes Become More Affordability: New Record Set

With home prices dropping across the country the result has been more homes have become affordable for families and now we are see Pending home sales have edged up, hinting at a possible pickup of sales activity in coming months.

The National Association of Realtors® just released their Pending Home Sales Index, a forward-looking indicator based on contracts signed in February, rose 2.1 percent to 82.1 from a reading of 80.4 in January, but is 1.4 percent below February 2008 when it was 83.3. This is a complicated way of say a lot of people have signed on the dotted line and are looking to buy homes.

The news is encouraging but the trade organization is hedging on calling this a recovery.“Pending home sales have a way to go for there to be a meaningful increase,” says Lawrence Yun, the NAR’s chief economist, but the market is continuing to underperformed, he adds.

Also in February, NAR’s Housing Affordability Index2 rose to a new high. the West index fell 13.5 percent to 89.6 and is 1.7 percent below February 2008. This is real interesting because the West with Phoenix, Las Vegas, Los Angeles and the Bay Area have seen steepest drop in prices across the country.

Home sales had been surging in California, thanks to steep price declines and foreclosure sales. But according to Dataquick, February home sales in California actually fell from January. Of the homes that sold, 58 percent were foreclosures, compared to 33 percent a year ago. Ity is not surprising that prices statewide are down 40 percent from a year ago. California, the Bay Area and Alameda residents are still search for the bottom in this housing market.

In Alameda we saw median home price drop 11% from February 2008 to 2009. The current sales year is at a pivotal month; April. Sales jumped from March to April 2008 saw a big bump in sales from 20 to 53. Early number show that March 2009 was very similar to last year and if we have hit bottom April will need to be a very busy month.

I do believe that buyer traffic is picking up, and if we believe the reports, so are sales. On the way down, a drop in sales came before the price crash. Hopefully sales are leading the same way on the way back up.

NAR Video on the two reports