How Do Property Taxes Work In San Diego?

Folks from out of state ask me about property taxes all the time. So if you don't know, here's the rules:

1. Taxes are the same everywhere in California. The next town over will not have a different tax rate than your town.

2. Property taxes are 1% of whatever you paid for the property, plus some local taxes like street lighting, landscaping, and pest control. It usually adds up to around 1.2% of your purchase price. So if you buy a house for $500K the taxes will be $500 a month.

3. Taxes go up automatically 2% a year. So if your taxes are $500 a month, next year they will be $510 a month.

4. There will never be a reassessment, and never a change in your tax rate. One exception: if you build an addition or remodel with a permit, this will trigger a re-assessment.

5. In large new areas where massive infrastructure was needed, there may be extra taxes called "Mello-Roos" taxes which can take the tax rate higher than the standard 1.2%.

This tax sructure, referred to as "Prop 13", creates some interesting side effects when prices rise like they have here recently. Imagine you bought your house for $300K five years ago, and now it is $600K. You would like to make a lateral move, meaning you want to sell your house for $600K and buy another house for $600K, say closer to work. Your housing payment should be the same, right? Nope!

When you bought your house at $300K, your taxes were $300 a month. They went up 2% a year, so after 5 years you are paying $331 a month in property taxes. If you buy that $600K house, your taxes will then be $600 a month! And all you didn't really move up, it was just a lateral move. So the result is that people don't move, they just stay put because moving is too expensive to consider.

By the way, if you are over 55, there is a one-time downsizing move allowed where you can keep your current taxes. But that doesn't help the thousands of folks who would like to move but are not yet 55 years old.

So Proposition 13 has some drawbacks, but as least you are not subject to the whim of local governments like other states. Tax rates in other states vary from city to city, and you can be re-assessed whenever the government needs more money (like they always do). We have investments in other states where the numbers work out fine going into the deal, and then they change the taxes on you, and what was a good investment becomes a bad one. How can you operate a business and not know what your expenses will be? In California you know what your property taxes are, and you know that they will not jump on you unexpectedly.

A Great Real Estate Newsletter

If you're interested in what's going on in real estate markets throughout the country, I recommend you subscribe to "John Burn's Local Building Market Intelligence" newsletter. It's free, and it will give you a look at different areas from a builder's perspective.

Here's a teaser from the latest issue:

"People are leaving the California coasts and the Northeast at a faster rate than prior years, primarily because of housing affordability. The high cost of housing is slowing population growth in many coastal markets, and migration trends suggest that more people are moving to markets where affordability is better.

In Southern California, the coastal markets of Los Angeles and Orange County are reporting an actual decline in the adult population, and San Diego had only a slight increase. Oregon, Arizona, Nevada and Utah have been the beneficiaries.

Even Florida's in-migration has slowed because of housing affordability. An annual migration study conducted by United Van Lines shows that the Southeast states with the highest rate of inbound moves are North and South Carolina, Alabama, and Tennessee, where home prices are still relatively affordable compared to their own histories."

You can sign up for the free newsletter here:
http://www.realestateconsulting.com/newsletter.htm

Coldwater Creek

I had to run over to Indio yesterday to gather what remained from our rental property. On the way back, I stretched my legs with a nice 1.5 hour walk through the woods near Idyllwild. It still amazes me that I can have breakfast in the desert, lunch in the pine-covered mountains, and be at the ocean watching the sunset during dinner.

The walk was through an area below the desert divide, mostly horse trail country. These trails are not on any maps. I was able to find the one person at the ranger center who had walked them - he made himself a map of the trails and made me a copy.



When you look at the lands around 4500 feet in elevation off highway 243, it looks like all manzanita and coyote brush. But once I got away from the road, I discovered the beautiful Coldwater Creek area, with plenty of pines and cedars. There was still a little snow left, even though it was 60 degrees!

It was just a perfect walk through the woods, without a big elevation gain. So if you don't want to spend all day "peak bagging", this 3 or 4 mile hike is a great alternative.

If you ever want to do some hiking in Idyllwild, give me a call - I know the way!

The Plowman Shall Overtake the Reaper

Here in Carlsbad, we don't really have winter, just a "cool season" and a "warm season". We can have a vegetable garden all year, and there are always flowers blooming. As soon as the days start to get longer in mid-January, we start to see all kinds of spring blooms. Usually the new blooms are coming on the trees even beore last season's leaves have fully turned color and fallen off. People around here don't think anything of it, but this Eastern boy appreciates how wierd this really is. Here's a picture of a flowering plum tree I took this morning:

I'm reminded of Amos 9:13 where Amos said, "The plowman shall overtake the reaper." He was prophesying of a land so bountiful that while the plowman is planting for the next season, the reapers will still be harvesting last year's crop. Although Amos wasn't talking about San Diego, our land here is so productive, and our climate is so mild that the trees think it is fall and spring at the same time!

C.A.R.'s California Housing Market Forecast for 2007

The rate of home price appreciation will post a modest decline next year following several years of steep increases, while the sales pace will decrease as the market stabilizes throughout 2007, according to the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) "2007 California Housing Market Forecast" released today. The forecast will be presented this afternoon during the California REALTOR® EXPO 2006 (www.realtorexpo.org), running from Oct. 17 – 19 at the Long Beach Convention Center in Long Beach, Calif. The trade show attracts more than 12,000 attendees and is the largest state real estate trade show in the nation.

The median home price in California will decline 2 percent to $550,000 in 2007 compared with a projected median of $561,000 this year, while sales for 2007 are projected to decrease 7 percent to 447,500 units, compared with 481,200 units (projected) in 2006.

“The housing market clearly downshifted in 2006 from the record-setting sales and robust price gains of the last few years,” said C.A.R. President Vince Malta. “The residential real estate market in 2006 was characterized by a gap between buyer and seller expectations. Sellers sensed that the peak of the market was approaching, yet still hoped to obtain the highest possible prices. Buyers’ sense of urgency waned as the number of homes on the market grew and they took longer to identify and subsequently purchase a home.

“Although the 2007 sales decline is not expected to be as steep as what we experienced this year, the psychology of the market -- matching the differing expectations of sellers and buyers -- will continue to be a factor as REALTORS® help consumers navigate their way through a changing market.

“While we’re projecting a modest decline in the median price of a home, over the long term, residential real estate in California has been and will continue to be a solid investment. Since 1968, the long-term average price appreciation is 9.1 percent,” he said.

“While we recognized that the frenetic sales pace of the past four years could not continue indefinitely, the housing market in 2006 did not fare as well as we initially expected,” said C.A.R. Vice President and Chief Economist Leslie Appleton-Young. “The anticipated slowdown that began in October 2005 was heightened by dual natural disasters in the Gulf Coast, a significant drop in consumer confidence, rising energy and raw materials costs, and a series of Federal Reserve interest rate hikes that began in June 2004. Fixed-rate mortgages also hit and passed the psychological threshold of 6 percent, while adjustable rate mortgages passed 5 percent, ultimately causing a decline in affordability. Affordability concerns also will continue to constrain sales for many households in California throughout 2007, especially for first-time home buyers.

“Looking to 2007, we expect that some regions of the state, including the Central Valley, San Diego and Riverside/San Bernardino regions, will experience sales declines greater than the state as a whole,” she said. “That also holds true for several second-home markets, including the desert areas of Southern California and the Wine Country.”

San Diego County Property Sales Plummet in 2006

San Diego County endured it's worst year for property sales since we've been counting: 1998. Home sales were down 23.4% last year. Condo sales were off 26.1%. This is three years in a row of declining sales. The question becomes, is this the bottom?

Interestingly, the median price for homes was flat at $575,000, while the average price gained 2.3% to $728,574. The year also ended on an up note with the median price rising off the year's low which was reached in October.

The median price for condos fell 4.9%, the first year-over-year loss since before 1998. The average price was down 2.6%.

2007 Forecast
Let's start by examining last year's predictions.
The National Association of Realtors said:
· national sales to drop 3.7%, 2006 to be second best year ever,
· median home price to increase by 6.1%, and
· mortgage rates to increase, will be 6.6% at the end of 2006.
National sales dropped 9% in 2006, which made it the third best year ever, the median national home price for 2006 rose 1.4% to $222,600 and 30-year fixed mortgage rates ended the year at 6.11%, according to Freddie Mac.

Next, the California Association of Realtors:
· California sales to decline by 2% in 2006,
· median home price to increase by 10%,
· and mortgage rates to be in the low- to mid-7%.
Sales plummeted 23% and the median price of a California home gained 7%.

The Real Estate Report said about San Diego County:
· sales will be stable or decline slightly,
· the median home price will gain 5%, and
· mortgage rates will go over 6.5%.
Home sales declined 23.4%, the median home price was flat, and mortgage rates, as previously mentioned, ended the year at about 6.11%.
I am definitely getting rid of that crystal ball.

Anyway, let's see what everyone is predicting for this year.
First, the National Association of Realtors:
· national sales will be comparable to 2006,
· median home price to increase by 1%,
· and mortgage rates to increase, will be 6.7% at the end of 2007.

Next, the California Association of Realtors:
· California sales to decline by 7% in 2007,
· median home price to decline by 2%.

Now, what do we think is going to happen in San Diego County:
· I'll go out on a limb and say sales will increase by 10% next year. Last year was the worst year for home sales since before 1998. I think there's some pent-up demand and the local economy is not bad,
· the median home price will fall 1-2%, and
· mortgage rates will end the year around 6.5%.

Carlsbad Gets Top-Notch Private School

This fall the nonprofit Pacific Ridge School opens in Carlsbad! The school will be of the same caliber as Francis Parker school, La Jolla Country Day, and The Bishop's School. No longer do you have to live in San Diego to have access to quality private education. Now you can live in beautiful Carlsbad and give your kids a world-class education.

For example, students will meet with their teachers around oval seminar tables instead of sitting in rows of desks that face the front of the room. This is a setup that demands participation as everyone has a front row seat.

Check out the details on their website, http://www.pacificridge.org/.

Normal Market in 2007?

Interested in another forecast? Here's the word from the 93rd annual Mortgage Bankers Association (MBA) expo in Chicago.
2007 mortgage production is expected to decline by 14% (down 19% in 2006)
New home sales down 8% (down 18% in 2006)
Existing home sales down 8% (down 9% in 2006)

The take-home message is that we have returned to a normal market, and it will probably take another year to work off the excess inventory. As a seller, you need to be very realistic about price, and not have a fixed price in your head ("what my neighbor sold for last year").

As a buyer, realize that prices may drift a bit lower, but not dramatically. Inventory has begun to decline as sellers who cannot sell for the price they want have taken their homes off the market for the time being. In other words, we may see more serious sellers in 2007 as those who don't have to sell stand aside. That makes this year a great opportunity to buy at the bottom of the market. Of course, no one knows the exact month and day the bottom will occur, but just getting close is a great position to be in.

I've run across many willing buyers who would love to move, but can't sell their place for what they need to make the move, or keep their tax base or whatever. Gridlock! Nobody can move. But once some of the cars are taken off the road, things will flow a lot better. So when listings expire and the owners decide not to put their home back on the market, I see that as a good sign.

New Senior Community in Hemet

A few days ago I went to check out a brand new 55+ community in Hemet called Rancho Diamonte by Del Webb. It promises to be a beautiful community, with over 1100 homes and a fantastic clubhouse.


As you may know, I am a Seniors Real Estate Specialist (SRES), and I need know what is going on, even as far away as Hemet. Some folks aim for San Diego County, but are not happy with the prices of things around here (imagine!) and wonder what other alternatives they have. Riverside County offers a lot more house for the money, so that is an option I have to be knowledgeable about.


Here's the street of model homes. No one has moved in yet, and the first homes will be finished around April, 2007. For more information about this community, I have a web page on my seniors website, click here to see it.




This is a view from Hemet towards the San Jacinto Mountains. I have a cabin in Idyllwild in those mountains. The worst part about going to Hemet is that I'm more than half way to my cabin, but I have to turn around and go back!

Win This Contest!

Welcome to the first contest of 2007! Below is a photo of Crystal hiking last week in our local mountains. Yes, we do get snow in the mountains! The first person who can tell me where the "Toll Gate" is gets a $25 gift certificate to Chili's or Macaroni Grill. Good Luck!

Going for the gold

Beach, desert, mountains - that's the San Diego lifestyle for you! Over the new year, Crystal and I spent a few days in the San Jacinto Mountains at 6000 feet elevation, and then did some hiking below sea level. Only in Southern California is this possible. Here's an abandoned gold mine in the desert about 40 miles from Indio, the nearest town. Talk about getting away from it all!

Crystal in the mine - could it be gold?


Bent native fan palm in Palm Canyon, home of the largest native palm grove in the world.

Simple versus Complicated

I just read a great book, "Why we want you to be rich", by Robert Kiyosaki and Donald Trump. It talks about planning for the future, in which the economy may or may not be as good as we see it today. They talk about some of the many dangers that can derail our current "good times", such as inflation, deflation, government bankruptcy, terrorist attack, asset bubbles, pension plan bankruptcies, etc. Any one of these things, or a combination, can seriously affect your retirement plans. That's why they want you to be rich, so that you can sail over any future storms.

But Kiyosaki said something that clarified my thinking about retirement. He said there are two ways to do it, simple and complicated. The simple way is to knock down your expenses to the bare minimum and have enough socked away or coming in to support that simple lifestyle. I've run into many people who are currently living or are close to being at this level of retirement.
An extreme case is Jerry, who lives in a motor home and bought a "Thousand Trails" membership. This is a type of timeshare where you can park your RV in any of their parks for two weeks at a time. So Jerry and his wife travel wherever they please, living on Social Security and a small pension. I ran into Jerry in Oregon at a family wedding, and he had parked in the RV lot there, and stayed in Oregon for two weeks to attend the wedding. He has his favorite spots in each park, like the one in the back with the great view, and he just books ahead to get these spots. This is a somewhat nomadic lifestyle, but heck, you get to travel, and you pay no real estate taxes.

Here's another example of a simple retirement plan. Wayne hopes to retire in a couple of years. He's worked most of his life at a union job, and by not living extravagantly he has almost paid off his mortgage and has a modest 401K. He figures that with the house paid off and a couple of new cars in the driveway, his pension and Social Security will cover his modest expenses. He will have to do some side work to make extra spending money, but he doesn't plan to sit around and do nothing anyway, so that's ok.

Now let's talk about Joe. I met with him the other day; he is looking to have his elderly mother move to San Diego to be closer to him and his family. Joe will buy a place with his mom, because she is not able financially to make the move on her own. So Joe has the means to make that happen for her.

Joe's travel plans this year include a rafting trip down the Amazon with his son, and a helicopter skiing trip in British Columbia with his daughter. Since his wife is not a daredevil, he will take her on a cruise of the Greek islands. Joe is currently on a "sabbatical", since he never sees himself as retired, just taking a break to explore some other things. He has a high net worth from successful investments in real estate and businesses. He still owns many of these assets and enjoys actively managing them and creating wealth.

OK, so simple or complicated - which one are you? Personally, I must admit that part of me craves the simple. At this stage of my life, I could do it by selling some properties, having a free and clear home to live in, and paying off some other properties to generate a small income. I'd be done! But then there is another part of me that wants to be in a stronger position that that. I would like to help my kids or my parents if need be, like Joe did. And what about when grandkids come along, it would be great to help them get a start in life, or pay for them to go on family vacations. Or if not the family, then just being able to support worthy causes that I care about.

Complicated means having assets that grow faster than the rate of inflation, and that requires hands on investing. Simple means money in the bank that generates interest to live on. Trump and Kiyosaki take the view that simple won't work over time. You have no control, and the value of the dollar is decreasing.

For Jerry, what if Social Security does not keep up with inflation? What if the price of gas goes sky high? He has no place to get more money to compensate. And for Wayne, his 401K has grown nicely over the long run, but what if the stock market falls when the baby boomers are forced to withdraw funds? He will not have decades to wait for the 401K to go up again.
So as much as I am tempted by a simple plan, I think I need to be more complicated. I believe everyone needs some kind of growth component in their retirement plan to keep up with inflation and protect you from unforeseen circumstances. For me, that growth component is real estate, since that is what I know and understand best.

I guess for me, it is a matter of being in control. Let's face it, money gives you options. A simple plan will work fine if everything continues smoothly as it has been, if there are no problems with Social Security, pension plan bankruptcies, spiking energy prices, Medicare, or the falling dollar. Kiyosaki and Trump say that you and I can't control any of those things, so as much as we would like it to be simple, we need to be more complicated. By embracing the complicated, we take control of our own futures no matter what happens.