Sticker shock  

Sticker shock  

Your savings continue to languish and your 401K never bounced back after the 2001 meltdown, but the huge equity in your home has more than made up the difference and now you’re feeling pretty good about life again, correct?

Not so fast, the experts say. They’ve studied the recent run-up in local housing prices and predict a serious "cooling off" period this year or, at the very least, a "soft landing." In fact, one economist in our page 1 story this week about local real estate prices says there’s a dangerous false sense of security that’s growing in the community. Homeowners have the perception that the equity in their home equates to net worth and powers them to spend beyond their means.

Quickly, how many of you are spending only a third of your gross monthly income on total housing costs (mortgage + homeowner fees + insurance + property taxes)?

That’s what we thought. It isn’t a pretty picture.

"The divergence between (personal) income and housing values has become so large it’s scary," economist Mark Schniepp told a gathering of real estate and banking experts in Westlake Village last week.

Americans, especially those living in Ventura County where home prices jumped an astonishing 29 percent last year, are eventually going to have to "pay the piper," said one expert from UCLA’s Anderson School.

"Cooling off," "soft landing," "pay the piper," but the one word that stood out the most during the two hour symposium on commercial and residential real estate was "bubble." As in, "when is it going to pop?"

The current bubble we’re in may not necessarily pop, as in the dot-com crash, but it certainly could deflate. Speculative purchases on residential units rose at a rapid rate last year, which is not a good sign. On the other hand, the local employment numbers remain healthy and the demand for homes strong. Unlike the Southern California real estate crash of the early ‘90s, people are not losing their jobs and tightening their belts. In addition, mortgage rates show no sign of suddenly spiking upward.

For now, enjoy the feeling of security that the equity in your home provides. But similar to common stock it’s a paper profit only, and worse yet, it’s not liquid. Don’t bank on it just yet. The roller coaster ride has only just begun.

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