At the Santa Barbara County 2008 Real Estate and Economic Outlook, three area experts focused a substantial portion of their talks on the residential crisis concentrated in the north county.
Experts said declining property values will take toll on both homeowners and county revenues, but buyers are better off, as plummeting prices have encouraged increased sales in the area.
Joseph Holland, Santa Barbara County recorder, clerk and assessor, talked about how property tax assessment in a declining real estate market can impact county revenues.
In the 2007-2008 tax year, the county received $576 million in property taxes, 27 percent of which goes to the county general fund that funds government services such as the sheriff, district attorney, public health and mental health.
While five years ago, property taxes made up 64 percent of the county’s discretionary revenue, Holland said that portion is now closer to 90 percent.
“So where the real estate market is going has an important effect on the funding for government services,” Holland said.
Documentary transfer tax, which is a tax on the transfer of real estate, reached a peak in 2005 at $800,000 in revenues to the county on 700 property transfers a month, Holland said. Today, the county is bringing in about $300,000 in tax revenues each month on 300 to 400 properties.
Although several properties that are being transferred are in the north county, Holland said, many of those have low values and thus bring in less tax revenue.
Holland said under California’s Proposition 13, the county must assess a property at whichever is lower of fair market value or its base year value factored, which is typically what a buyer originally paid for a property plus an annual percentage added each year for inflation.
“So for properties purchased at the peak of the market in 2005 and 2006, their base year value factored now exceeds fair market value because property values have come down,” Holland said. As an example, he said a property that sold for $875,000 in 2005 is assumed to be assessed at $725,000 in 2009 and not expected to exceed its base year value until 2018, considering 5 percent appreciation per year.
Because of the recent real estate crisis, he said the 14,000 properties have been adjusted, totaling about $1.2 billion drop in values. In comparison, about 20,000 properties were impacted by assessments at the peak of the housing recession of the early 1990s. Using maps to illustrate the concentration of negative assessments, Holland showed that Santa Maria and Orcutt lead the way, with 10,500 homes negatively impacted by assessments in the north county and 3,500 on the South Coast.
Mark Schniepp, director of the California Economic Forecast, said in the Santa Maria Valley, 2008 will be the biggest year in single-family home sales since 2004. “The weakest markets will show the sharpest gains in volume because prices have fallen the most there,” he said at the Thursday breakfast event. “So there will be a big rebound in the north.”
A lazy V-shaped recovery in home sales, Schniepp’s report said, is influenced “almost entirely” by Santa Maria and Lompoc Valley sales.
For September, 242 homes are in default on the South Coast, equating to 4.6 defaults per 1,000 households, while in the Santa Maria Valley, Schniepp said 797 homes are in default this month, equating to 28.2 defaults per 1,000 households.
The rate of depreciation of home values in Santa Barbara County is “unprecedented,” the report said, with distressed transactions such as those seen in the Santa Maria area contributing to the decline in prices.
The number of new homes started in Santa Barbara County this year will be the lowest in 50 years, Schniepp’s report stated. Housing production is “way down” in the North County, with fewer than 100 homes under construction, while in the South County, housing production has ticked up slightly.
Dick Keenan, a Pismo Beach-based real estate agent that has made lemonade out of the north county foreclosure crisis by organizing a bus tour for deal-seeking buyers, discussed the “good, bad and ugly” of the housing situation in Santa Maria.
Home prices have dropped about 45 percent in the city, he said. As for the “ugly,” Keenan said much of the for-sale home stock is tainted by abandonment and vandalism. Under the “bad” category, he listed displacements of families, neighborhood-specific impact, investor and developer hardships and a decline in family net worth.
“You can’t use that house as an ATM anymore,” he said.
On the upside, however, Keenan noted that lower prices have made home ownership a reality for young buyers, thus increasing sales activity among entry-level homeowners. Now, he said, contractors are getting more work, real estate brokers are getting busier and neighborhoods are improving as abandoned homes are becoming occupied again.
“The seeds of the beginning of the best of times have been planted in Santa Maria,” Keenan said.