The return of the home as personal ATM
SANTA ROSA, Calif. — Hey, real estate is back! It’s not just San Francisco and its new homes “starting in the $1,000,000s,” as the now-famous billboard cries out. Fortunately, if you will settle for a house that isn’t new, you might be able to catch one in San Francisco for the recent median price, around $800,000, providing you aren’t too picky about square footage and functional indoor plumbing.
I’m thinking about this while spending a few days in Sonoma County, indulging my inner wino at Willi’s Wine Bar and walking around. Home prices can be shocking in Santa Rosa, too. According to Trulia, the median sales price in Santa Rosa is $472,000, something over $300 a square foot. All in all, it’s about twice the national median. And Santa Rosa is a bargain compared to nearby places like Petaluma, Sebastopol and Calistoga.
About the only bargain you can find in a California move is the cost of getting there. According to U-Haul, which provides this information online, you can leave Austin in a 20-foot truck and head to San Francisco for only $1,108. Rent the same truck in San Francisco for a move to Austin, and it will set you back $2,365. The message here is that a lot of people are moving to Texas. So equipment is piling up. What can U-Haul do? Set a low price for people willing to haul it back.
Even so, California real estate is headed back to prices that can only be described as bubbly. I learned the rough metrics from friends who had sold their house in Texas and moved to Southern California. To make the numbers work, they needed to pay about twice as much for a house half the size of the Texas house they sold.
According to Sperling’s Best Places website, you’d need a salary of $227,793 a year to replace the standard of living a $100,000 salary would provide in Austin. Yes, housing is the biggest single point of difference. Today, Austin’s cost of living index, at 106.5, is just a bit over the national index of 100. But San Francisco sits at 242.6, and other California locations aren’t far behind.
Sperling’s also tells us that the cost of living index in Plano in suburban Dallas is 114.7, nearly half the cost of living in Torrance, Calif. The biggest difference, again, is the cost of housing. Small wonder that 75 percent of the employees at Toyota’s North American headquarters in Torrance are happy to make the move to the new headquarters in Plano. The move, for a $100,000-a-year Torrance employee, will be like having an enormous raise.
In spite of the outflow, the California real estate market still looks seriously fizzy. Is it the heady, houseflipping mania of the years just before the crash? That’s scary just to think about. To me, it’s looking more like a stealth-bubble, a thing that sneaks up on everyone — unless you’re actually buying a house.
One reason may be that home prices in California (and a few other places) are no longer grounded in paychecks. Instead, they are tied to what the late George Goodman called “Supermoney”— the money that comes from sale of common stock, particularly initial public offerings. Supermoney multiplies a dollar of sales, profits or Internet fantasy by a large number. It crowds out the sorry souls who have to buy their houses with ordinary cash.
But it’s not all bad news. The rising level of house prices also works to increase price levels for all houses, and that is reopening a dream for others — the home as ATM.
Research from Black Knight Financial Services, a mortgage data-crunching firm in Jacksonville, Fla., suggests this. The firm’s February mortgage monitor reports show strong cash-out refinancings across the country. The leader? California.
In the fourth quarter of 2015, the report notes, California refinancings accounted for 42 percent of the $7.6 billion of equity “extracted.” The equitymining homeowners in California averaged a $98,000 cash-out. Typical cash-outs elsewhere were about $60,000. Today cash-out refinancings are only a fraction of the enormous sums taken at the 2005-2006 peak.
But the year is young. And money is cheap.