|This article was published on: 06/01/2005|
California’s Affordability Crisis
Practitioners get creative to help first-time buyers in a state where median-priced homes are unaffordable for most households.
BY CORRIE M. ANDERS
California homebuyers trying to cope with the highest real estate prices in the nation are increasingly being priced out of the market or are forced to move further away from where they really want to live.
The state has undergone such a spectacular surge in housing values that it has plunged into the worst affordability doldrums since 1989, when Ronald Reagan was in the last year of his presidency, according to CALIFORNIA ASSOCIATION OF REALTORSŪ’ annual housing affordability index.
The crisis has forced practitioners to get creative in finding solutions to help their clients overcome ever-spiraling home prices.
In the last five years, home prices in the Golden State have more than doubled to a median $450,990 in 2004 from $217,510 in 1999, according to CAR. Seven of the 10 most expensive housing markets in the nation last year were located in California, according to Coldwell Banker’s annual Home Price Comparison Index.
All of the California markets in the Coldwell Banker survey were along the coast, with the fashionable enclave of La Jolla in the spotlight as the most expensive city in the country for the second consecutive year. La Jolla buyers paid an average $1.7 million for their swank address, Coldwell Banker says. (The La Jolla price tag for a 2,200-square-foot home is in sharp contrast to the country’s most affordable city—Minot, N.D.—where $130,300 purchased a similar-size home.)
For California as a whole, only 18 percent of its residents in March could afford to purchase the median-priced $495,400 home, down 3 percent from a year earlier, and buyers had to earn $115,910 annually to qualify for an 80 percent mortgage loan. A regional breakdown showed the pain was harshest for buyers in Santa Barbara County and the Northern California wine country, where only 9 percent could afford homes costing the local median $595,830 and $596,970, respectively. The easiest region in which to purchase was in the High Desert area, where 36 percent of residents could afford a median $264,320 home.
Pain Across the Board
There are no signs of relief to price run-ups this year. CAR predicts home prices will balloon another 15 percent in 2005, thanks to low mortgage-interest rates, an awakening economy, and a severe shortage of housing in the state.
The flip side of the hot real estate market is that many buyers are scuffling just to get in. The problem is pervasive and cuts across class and economic landscapes—from farmers in small agricultural towns and working-class families in rural mountain hamlets to highly-paid professionals in urban cities. For example, take a look at these markets:
How to Help First-Time Buyers
Real estate practitioners in California are using a number of approaches to help their clients—especially first-time buyers—afford a home. These tips also can work for practitioners in other high-priced markets who want to help their clients achieve homeownership:
Some Affordable Options
Although the housing squeeze is real, it’s not all doom and gloom. There still are some “affordable” neighborhoods for California homebuyers. Real estate professionals point to these options:
The current state of housing prices in California means that homebuyers have to work a little harder to buy a home. Practitioners also may have to work a little harder to help their clients achieve homeownership, but persistence pays off.
Buyers can trade off their dreams for a detached home for a less expensive condominium, accept a neighborhood that is not their first choice, or move further out of town, says Avram Goldman, CRB, president of Coldwell Banker Northern California in San Ramon. “A lot depends on where you want to live and what you’re willing to sacrifice,” he says.
10 Most Expensive Markets in the United States
1. La Jolla, Calif. $1,708,333
2. Beverly Hills, Calif. $1,313,750
3. Santa Barbara, Calif. $1,230,000
4. Palo Alto, Calif. $1,212,000
5. Greenwich, Conn. $1,192,500
6. Newport Beach, Calif. $1,174,375
7. San Mateo, Calif. $1,142,500
8. San Francisco, Calif. $1,125,500
9. Wellesley, Mass. $1,102,500
10. Kailua Kona, Hawaii $1,087,500
Source: Coldwell BankerŪ Home Price Comparison Index, 2004