Housing Affordability: A California snap shot

Posted by: Chris Palmeri on February 21, 2008

The latest numbers from the California Association of Realtors suggest homes in the Golden State have been getting a little more affordable. The percentage of households that could buy an entry-level home in California ($411,000) stood at 33% in the fourth quarter of 2007, compared with 25% for the same period a year ago.

Home prices may be falling, but buying one is still a stretch for most of the state’s residents. The Realtors figure you need a minimum household income $82,000 to purchase an entry-level home. That’s based on an adjustable interest rate of 6.2% and assuming a 10% down payment and a monthly payment including taxes and insurance of $2,740.

A recent report from the non-profit California Budget Project shows just how far behind the state is from the rest of the country. The state’s homeownership rate is relatively low, with 58% of residents owning their homes in 2006, compared to more than two-thirds (67%) of households in the nation as a whole. In Los Angeles, the city was forced to dial back on a multi-billion-dollar school construction effort because fewer people are moving to the high-cost city.

A coalition of 91 community groups in the state sent a letter to Bank of America yesterday urging the company to halt foreclosures by soon-to-be acquired Countrywide Financial. The groups urged the big bank to keep the mortgage company’s headquarters in California and modify adjustable loans into fixed ones with rates of no more than 6% for thirty years. They say it never hurts to ask.

Reader Comments

Jim D

February 21, 2008 11:07 AM

That 33% figure the CAR "adjusted" figure, isn't it? The old one, with a 30 year mortgage and 20% down, was cruising around 9% when they discontinued it. Still, it remains the true measure of affordability in the state. Too bad you don't mention it.

Eric Toya

February 21, 2008 4:41 PM

Monthly PITI of $2,740 on an income of $82,000 means that housing expenses account for 40% of your gross income. The Financial Planning Standards Board recommends that individuals commit not more than 28% of their gross monthly income to housing.

They should also include in that calculation what percent of Californians with a household income of $82,000 have $41,100 for a down payment. And if you are only putting down 10%, what about PMI?

Markus Arelius

February 22, 2008 1:37 PM

I'm always amazed at the liberal use of the word "homeowner". What the CAR and NAR like to call a "homeowner" is actually, more often than not, a "homedebtor". This is important in California due to the delta between real incomes and home prices - and the financing instruments required to "get in the game". Your estimate of $411K is low. In Orange Cty, California $411K would buy a 1 bed, 1 bath condo and not a well constructed one at that. Housing affordability is an underestimated and serious problem in California, but not at all as serious as California realtors continuing to recommend buying a home right now. For one, prices have no where to go but down. Second, people with $82,000 income in OC should rent until homesellers pull there heads out...

Marcio - S. Florida

February 22, 2008 11:05 PM

At least in California, you are looking at higher wages supporting a much more vibrant economy based on a well-developed service, high-tech, banking, manufacturing, farming economy in that state.

However, once cannot explain the situation here in Florida. Median income of 45K and median price of homes of 410K at the peak.

The lack of information available to everyday folks and this idea that over stretching for a bigger home is just insane.

jack

February 25, 2009 1:14 PM

This recession will be deep, but again housing will save it when it gets so low people would be dumb not to buy. It will get there, but many of us will be sidelined for being jobless. As quick as it fell, it will rise like mad. Most people buying will be the rich of course, like always. Then during the boom, the rich will unload to average folk for a hefty profit. As what goes up must come down, you can count on the rich salivating at 100K range home prices that they later sell for 500K. So hang on folks, but this is a field day for the well heeled, not for the average joe.

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About

BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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