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MANmom commented on the excessive fees that add to the cost of homeownership.  How much are we talking about?

Let’s look at a sample of the current fees in some of the first Mello-Roos communities, built 1998-2002:

Tract                                   HOA monthly fee           Mello-Roos

Santa Fe Trails                      $60                                $400/year

The Ranch                              $140                              $400/year

La Costa Valley                    $96                                 $800/year

Now let’s look at tracts built in the last two years:

La Costa Oaks                        $227                              $1,200/year

La Costa Greens                    $250                             $2,000-3,100/year

Bressi Ranch                          $205                              $936-$2,570/year

Arrowood                               $110                               $2,611-$4,629/year

It used to be civil.

In Santa Fe Trails the fees are less than $100 per month, not bad. 

But now in the newer tracts it’s $300 to $500 per month, or more!

Mello-Roos is the biggest rip-off in real estate, and that’s saying a lot.  Knowing that it was a bill passed in the state legislature by our politicians Mr. Mello and Mr. Roos doesn’t make it any easier to swallow – they should have been bound by Proposition 13, instead they devised this loophole.  They allow the builders to sell bonds to pay for the costs of schools, streets, sewers, all the extra costs of building that used to be figured into the new home prices.  Then the new homeowners pay the bonds off, usually over 25 to 30 years.

When it first came out, a tract salesman told me that Mello-Roos allows for the builder to sell the homes cheaper, because they don’t incorporate all the extra costs.  Really? I’ve never seen any of these builders sell homes at a discount.  In fact, it allows the builder to pass along a ton of costs and still sell the houses for full retail price – that’s a huge rip-off.

Now many cities have added "assessment districts" to tack on another $800 or so per year.

Let’s buy a new million-dollar home, shall we?

 $1,000,000 – 10% down payment ($100K) =

$900,000 in mortgages

$800K first TD @ 6.75% 30-year fixed, P&I               $5,188.78

$100K second mortgage, IO at prime plus 1%           $    750.00          

Property taxes (1.1%)                                                            $    916.67

Property insurance                                                                $    150.00    

HOA fee                                                                                       $    250.00

Mello-Roos (at $2,500/year)                                           $    208.33

Special assessment district                                                 $      66.67

County fees (vector, etc.)                                                    $      41.67

Total monthly payment                                                       $7,572.12

You’d have to have a salary of approximately $22,000 per month to qualify for this loan program.   Any wonder how exotic ARMS got so popular?  Any wonder the market has stalled out?  Heck, just the interest rate going up 1% added $728.53 each month to this example, that’s about $100,000 in lost buying power. 

As MANmom pointed out, many tracts have fees higher than this example.

Did the bubble start with the builders? Their greed has burdened their tracts with excessive fees that will weigh on the homeowners for a long time, plus make their homes less marketable. 

Many buyers are insulted by the extra costs and won’t buy one of these tract homes at any cost.  They’re pushed into older resales where buyers were happy just to pay a little less and save the monthly fees, in exchange for the aggravation of having to search for the right home.

Pricing in the resale market has just followed behind new home sales.

The builders’ arrogance is astonishing.  They think the buyers will buy anything, at any price.

The buyers who sign up for these houses, I’m convinced, are so driven to get a new home that they don’t even think about the ramifications.  The euphoria blinds them from questioning whether or not they can afford it, or whether these excess fees could diminish the value of the home, and their ability to sell it.

I’m also convinced that many of the decisions to buy these homes are made in a split-second with no thought at all, let alone shopping around to make sure it’s a good decision.