Home prices have outpaced household income throughout California, and in 14 counties the median income needed to purchase a median-priced home is more than double the median household income, according to a report released today.
The median home price in California soared from $200,000 in March 2000 to $470,000 in March 2006, according to “Locked Out 2008,” a report by the independent, nonprofit California Budget Project organization.
About 45.3 percent of California households that own homes spent 30 percent or more of their incomes on housing in 2006. That compares with 29.1 percent of owner households for the rest of the nation. Also, about 27.4 percent of California households spent at least half of their income on housing in 2006, compared with 24.8 percent of all U.S. households.
It’s tough for renters, too, the report states, and California ranks second in the nation for its high rental costs. A Californian who earns $8 an hour, the state’s minimum wage, would need to work 83 hours per week to afford the statewide Fair Market Rent of $868 per month for a studio unit, according to the report.
Prices have been dropping in the state, the report notes, with five consecutive months of year-over-year price declines as of December 2007, and the median home price in the state dropped from its peak of $487,500 to $402,000 as of December 2007.
Sales of existing homes in the state slumped 29.8 in 2007 compared to 2006, according to a separate report released today by the National Association of Realtors trade group. And that report also noted that California is home to five of the most expensive real estate markets in the nation.
Despite the downturn, the California Budget Project report states that affordability and overcrowding are still major problems in the state.
One of eight rental households in the state was overcrowded in 2006, compared with a national share of 5.8 percent, according to the California Budget Project report.
The report suggests that more efforts are necessary by local, state and federal policymakers to boost the supply of affordable housing, and recommends a stable source of money for affordable housing and the encouragement of local affordable housing goals.
A fee charged for processing real estate documents, penalties for cities that do not provide for a sufficient mix of affordable housing, and the enforcement of zoning policies to ensure that developers provide a percentage of affordable housing in new projects are among the possible steps that policymakers can take to boost the availability of affordable housing, the report suggests.
Also, the report recommends that policymakers work to keep homeowners facing foreclosure in their homes, and to support services that aim to reduce and prevent homelessness.
“Tens of thousands of California homeowners with (adjustable-rate mortgages) are at risk of losing their homes as introductory interest rates expire and mortgage payments rise. Some home buyers were lured into loans with risky features by unscrupulous lenders using aggressive and deceptive practices,” the report states.
There were 84,326 foreclosures statewide in 2007 compared with 2,920 in 2005, according to data presented in the report, and more than 190,000 subprime loans in California that were outstanding as of mid-2007 could wind up in foreclosure by 2009.
Policymakers could work to connect homeowners facing foreclosure with resources to help them negotiate more favorable loan terms, and could require lenders “to follow sound underwriting standards, prohibit prepayment penalties on subprime loans, curb deceptive lending practices, and promote consumer financial education, according to the report.
California households needed an income of $113,162 to afford a median-priced home in California in August 2007 with a conventional 30-year fixed-rate mortgage and a 5 percent down payment, which is double the statewide median household income of $56,645, according to the report.
In San Francisco, the income needed to buy a median-priced home in August 2007 was three times higher than the median household income for the area, based on the same conventional loan terms.
Tulare and Sacramento counties were the most affordable areas in the state to buy homes as of August 2007, though the income needed to buy a median-priced home in each county was still higher than the median household income in both counties.
Younger generations in California are less likely to own a home than they were three decades ago, according to the report. While 58.4 percent of Californians ages 30-39 owned a home in 1979, that rate dropped down to 46.4 percent in 2007.
The rate also dropped from 72.1 percent in 1979 to 65.2 percent in 2007 among those 40-49; from 74.3 percent in 1979 to 69.6 percent in 2007 among those 50-64; from 28.1 percent in 1979 to 24.4 percent in 2007 among those under 30; and it rose from 67.1 percent in 1979 to 72.7 percent in 2007 among those 65 and up.
Black households saw a decline in the home-ownership rate during that period, declining from 46.1 percent in 1979 to 39.2 percent, while home-ownership rates rose for other racial and ethnic groups during this period. Home ownership for whites rose from 62.7 percent in 1979 to 66.1 percent in 2007; from 45.5 percent in 1979 to 47.7 percent in 2007 among Latinos; and from 54 percent in 1979 to 59.8 percent among those defined as “Asian and other.”
The report also found that the state’s home-ownership rate declined during this period for households with one or more children, from 64.1 percent in 1979 to 59.2 percent in 2007.
The home-ownership rate increased from 48.8 percent in 1979 to 48.9 percent in 2007 for Californians with a household income between $25,000 and $49,999.
The report cites a variety of factors that allowed Californians to purchase homes during the real estate boom despite the affordability problems. Loose lending practices, a decline in mortgage interest rates, a movement of many Californians to less expensive areas or into small homes, and substantial income gains for the state’s wealthiest residents kept the market moving, according to the report.
While about 59.4 percent of jobs created in the state from 2000-05 were in residential construction, specialty-trade residential contracting and real estate, the state’s housing and economic decline have seen “substantial job loss,” the report states, with a 5.1 percent decline in housing-related jobs from December 2006 to December 2007. The state’s unemployment rate reached 6.1 percent in December, a three-year high.
California has the third-highest rate of homelessness in the nation, at 0.47 percent of its population as of January 2005, and more than half of California’s homeless population lacked temporary shelter. Nevada had the highest homeless rate at 0.68 percent followed by Rhode Island at 0.64 percent.
“Greater local, state and federal efforts are needed to meet California’s housing challenges,” the report concludes. “Although the current economic climate and the state’s deteriorating fiscal condition increase the difficulty of meeting these challenges, failure to act could further undermine the state’s economic health — a prospect that California’s working families can ill afford.”