SANTA ROSA, CALIFORNIA. Just beyond the Safeway parking lot, my early morning walk takes me into an older housing development. The homes are on small lots, about 60 feet wide. They are well tended, with lovely plantings.
Enormous irises are already in full bloom.
The size and design of the houses says they were built in the early 50's--- they are ranch homes, 1,100 to 1,400 square feet. Most have single car garages. In the background, a tall grassy hill looms.
A house painter dressed in coveralls walks toward me. We start to talk. I learn the house behind me is his, that he bought it nearly 30 years ago for $17,500, and that he has improved it by adding a family room. Like its landscaping and small lawn, the house is in perfect condition. In much of America it would sell for about $150,000.
"How much do you think your house is worth," I ask?
"Prices are crazy here," he says. "About $900,000."
Somehow, I am not shocked. This is California, the Tulip State. A compulsive reader of area home guides, I know that $300 a square foot is basic, $400 is routine, and figures way over that are common. People are selling in Marin County, to the south, to take advantage of the "bargains" here. Indeed, a day later I describe the house and neighborhood to a realtor. She immediately informs me $900,000 is a bit high.
"It's more likely worth about $800,000," she says.
An advertisement from a Russian River realtor offers, "RURAL SEBASTOPOL. Beautiful sunny view lot with older mobile home. Approximately ½ acre lot. Mobile is in good condition (for its age) and has large spacious rooms and covered patio. $350,000."
It may not sell for that, of course. But I can't help thinking about a house in Steiner Ranch that has been for sale since last summer. The suburban Austin development offers bike paths, community pools and tennis courts, and an occasional view of Lake Travis. Like Lake Woebegone, all of the children here are above average, probably because at least one of their parents works for Dell Computer. This house has one of those distant Lake Travis views from the master bedroom, 3,500 square feet of living space, a large lot, 2 ½ baths, etc.--- but it has no takers at $300,000.
The real issue, however, isn't the stunning differences in price from one location to another. It's the paycheck gap. California is full of working stiff houses with fat cat price tags.
Visit a website like
www.bankrate.com and you can play with one of the many "How much house can you afford?" calculators. Their calculator tells me that if you have a 20 percent down payment (that's an impressive $160,000 on an $800,000 home) and can get a 30 year mortgage at 5 percent, you'll need an income of about $13,000 a month to qualify for the necessary mortgage. (This assumes that real estate taxes are only one half of one percent of value, that insurance is relatively cheap, and that you've managed to avoid any consumer debt that might reduce the amount you can borrow.)
So you'd need an income of $156,000 a year to buy that house for $800,000.
How much would you bet the owner doesn't earn that much? While some painting contractors do very well, I've never met a painter who earns $156,000 a year. Indeed, fewer than 5 percent of all income tax returns report that much. Most get there by having two earners.
Basically, California is a state where few of the homeowners would qualify to buy the houses they already own. This is good for them--- if they have plans to sell their homes and move out of the state.
But it makes you wonder who (and where) the next buyer is.
Next Sunday: The Zip Code 401(k)
How much home can you afford?Tax Foundation Report on Income Distribution
