How Do Californian's Afford a Home? Good Question

I was reminded in the comments of my previous post that prices are not declining everywhere in the U.S.

My reply to that is that I write about my market, and in my market, and ALL of California, prices are falling. Here are some sobering statistics:

• Median fourth-quarter (2007) metro area single-family home prices ranged from a very affordable $72,600 in the Youngstown-Warren-Boardman area of Ohio and Pennsylvania, to nearly 12 times that amount in the San Jose-Sunnyvale-Santa Clara area of California, where the median price was $845,300. (I was raised in Sunnyvale. My parents purchased their home in 1962 for $36,000 and sold it in 1995 for $495,000.)
  
  
• The second most expensive area was San Francisco-Oakland-Fremont, at $777,300.
  
  
• Followed by the Anaheim-Santa Ana-Irvine area (Orange County, Calif.), at $657,400. (So the three most expensive locations in the fourth quarter of 2007, median price, were all in California.)
  
  

• Home prices have boomed and exceed what many Californians can afford. California's median home price boomed between 2000 and 2006, more than doubling from $200,000 in March 2000 to $470,000 in March 2006.

• The income needed to purchase the median-priced home exceeds the median household income throughout the state and is more than double the median household income in 14 counties, 13 of which are in the San Francisco Bay Area and/or on the coast. (California has the 2nd lowest homeownership rate of any state.)

• Research suggests that more than 1 million US homeowners, including more than 190,000 in California, could lose their homes as introductory rates reset to higher levels. The state and federal governments have promoted initiatives to help stem the increase in foreclosures among homeowners with subprime ARMs. However, unless such relief efforts are expanded, the number of foreclosures is likely to increase as California's homeowners face higher mortgage payments at the same time that credit standards tighten and home prices soften, making it harder to sell a home or refinance to a more affordable loan.

• Housing costs have outpaced many Californians' wages and incomes. The cost of the state's median-priced home nearly tripled between 1989 and 2006, increasing by 193.4 percent. In contrast, the state's median hourly wage - the wage of the worker at the middle of the distribution - increased by 60.3 percent and the state's median household income rose by 67.6 percent during the same period.

• Fewer than half (46.4 percent) of Californians in their thirties owned their homes in 2007, compared to 58.4 percent in 1979.

Most of these bulleted statements were taken from the California Budget Project's 2008 Locked-Out Report. Some of the reports suggestions to help California's housing crisis:

• Increase the supply of affordable housing.
• Help homeowner's who face foreclosure and protect future homebuyer's (put them into mortgages they can afford even if the interest rate adjusts upward).
• Reduce and prevent homelessness. (The most comprehensive study of homelessness in California to-date found that California has the third-highest rate of homelessness in the nation, that homelessness is prevalent throughout the state, and that more than half of homeless individuals live in families with children in several areas of California.)

You may ask, as my husband did, "How did Californian's manage to buy homes during the housing boom?" The Lock-out Report states:

• Loosening of underwriting standards
• Loans with risky features
• Many Californian's moved to less expensive areas (like Del Norte County, median priced home for 2007 approx. $225,000)
• Some Californian's bought smaller homes than previous home buyers
• Mortgage interest rates declined significantly.\

• The states wealthiest residents have experienced substantial income gains

There is a wealth of information in the Locked Out report and I suggest if you have interest in California real estate that you give it a read so you can see where California may be headed.

The problems facing California are tough issues that are not easily resolved. I believe that home prices are going to continue to decline in California and that when prices do recover, it will be a slow progressive rise over a long period of time.

If you are considering listing your home, now would be a good time before prices decline any further, or, wait until the cycle runs its course and the market rebounds, but know this may be a substantial wait, some experts believe a year or more.

These conslusions are my opinions based on my own research using sources I deem credible. Other students of real estate might come up with different conclusions, that is why it is always smart to do your own research and draw your own conclusions based on credible sources. Use several different sources to give you a broader and more balanced view.