State Home Sales to Stay on a Roll
In the midst of one of the nation’s most critical truth-is-stranger-than-fiction episodes, the country’s economic spotlight remains fixed on a robust housing market.
At a time of international covert gun-running to Iran, parlayed into a diversion of those sales into funds for Nicaraguan rebels, the housing sector maintains a hot pace, particularly in the metropolitan Los Angeles area.
Ironically, when estimates of the homeless who live in Los Angeles County range anywhere from 40,000 to 90,000, booming sales of new homes in the Los Angeles standard metropolitan statistical area show few signs of slowing. And almost blithely, California leads the pack in resale of existing homes.
Reliable indications are that the local market will easily retain its national leadership in new-home construction next year, while California holds onto its lead in the resale field.
Interest rates at under 10% for fixed-rate loans and under 8% for adjustable home loans obviously are the magnets for all this activity, helped along by a 9% VA interest rate.
In addition, the home-buying public is fully aware that tax reform did not touch or change the real estate industry’s two sacred cows--deductibility of mortgage interest and property taxes. That leaves home ownership on its high-plain pedestal for investment.
The high level of affordability of California homes, currently at a three-year high, also aids and abets the market.
One of the country’s top insurers of property titles fully expects Los Angeles to retain its pace-setting role in 1987 with 62,700 housing starts, while the red-hot Riverside/San Bernardino market occupies the runner-up spot with 52,300 units. Nationally, Chicago Title Insurance Co. anticipates 287,600 housing starts next year in California, which will continue to top the field.
Richard B. Kelley, resident vice president here for the title insurer and its Los Angeles County manager, predicts that San Diego, San Francisco and Anaheim will rank 7th, 11th and 16th, respectively.
Housing starts nationally will dip slightly, he expects, from the anticipated 1.88 million units this year to 1.87 million in 1987. Single-family starts in the nation will rise by 5%, but that will probably be negated by an expected 11% drop in multifamily housing starts.
By city categories, Kelley’s data indicates that the other top 10 new-home construction areas will be Phoenix, with 51,700 housing starts; Atlanta, with 51,400; Chicago, with 46,700; Dallas-Fort Worth, with 43,600; San Diego, with 41,000; Washington, with 39,500; Philadelphia, with 34,400, and Boston with 30,400.
Meanwhile, the California Assn. of Realtors reports that resale activity during October was at its peak for the year and the best since September of 1980. Sales were recorded at a seasonally adjusted annualized rate of 585,991 units, up only 1.8% over September, but 17% higher than October, 1985.
CAR President Richard J. Rosenthal, whose term in office has become a banner year for sales, said the statewide median price of an existing single-family home dropped to $127,387 in October, and coupled with interest rates below 10%, “Californians were as well positioned to enter the housing market as at any time in this decade.”
The CAR also reports that the state’s affordability index is at its highest point of the year--and the highest in three years. The index relates to the amount of income a family can afford for a down payment on a home.
Thus, the October (latest available reading) rate of 33% means that 33% of all California households could afford to buy the median-priced dwelling, assuming the buyer makes a 20% down payment and spends 30% of monthly income on mortgage principal, interest, property taxes and home insurance.
“Five of the seven California regions surveyed showed an increase in affordability in October over September, in addition to significant improvements over last October,” said Joel Singer, the association’s chief economist and vice president for research, planning and economics.
In order, Sacramento, with 52%, Riverside/San Bernardino, with 43%, and San Diego, with 32%, registered the best affordability ratings.
Only Los Angeles showed a decline in affordability for October, with 29% of its households able to buy a median-priced $131,584 home. The family would require an income of $42,911 to qualify for a loan. That compares with 31% in September, and 25% in October of last year.
Elsewhere in the nation, housing is much more affordable, with the national affordability index at 49% for October. That means nearly half of all American households earned the minimum qualifying income of $25,991 needed to buy a median-priced home of $79,700. But where and how many, a Californian might ask, can a house at that price be found hereabouts?
CAR’s Rosenthal notes that California’s median-priced home outpaces the national median by a whopping $50,000.
That means there is much work to be done to make California’s housing more affordable for its people, he said.
“Unfortunately,” he warned, “government supported housing programs--such as the Federal Housing Administration, initially created to make homeownership easier for Americans--are rapidly waning. Now, more than ever, public pressure must be applied to insure that these programs remain operational. For many families, these government housing agencies are the only hope they have of achieving the American Dream.”
