County’s High Home Prices Would Thwart Dukakis Plan, Experts Say

Michael S. Dukakis’ proposal to allow first-time home buyers to use up to $10,000 from tax-deferred retirement plans for a down payment may not be enough to boost middle income buyers into Orange County’s high-priced housing market, real estate sources said Monday.

Half a dozen experts familiar with Orange County’s housing market pointed out Monday that the county’s houses are so expensive that $10,000 would help a few first-time buyers but not the majority.

Orange County’s median resale home price rose to $224,828 in August, meaning that a family would need an annual income of $70,000 to qualify for a typical home after making a standard 20% down payment of $22,500, according the California Assn. of Realtors. The median price of a new home was even higher--about $313,000.

Dukakis’ plan, outlined Monday, would be available only to people with incomes up to about $40,000. First-time buyers in that income range would find it difficult to break into the Orange County market unless they made a very large down payment or bought a home far below the median.

“In Orange County, the demand for housing is so high and the need for a high down payment is such that $10,000 doesn’t make too big a dent,” said Tom DiLeo, real estate loan production manager for Costa Mesa-based Downey Savings & Loan.

Under the Democratic presidential nominee’s plan, the government would permit money to be withdrawn from tax-deferred IRA and 401 (k) retirement funds without penalty if used for first home purchases. Also, down payment requirements for federally insured mortgages would be lowered.

Some experts doubted whether many first-time buyers who make less than $40,000 would have an IRA or 401 (k) account to dip into.

“My first impression is that people who have made the contributions (to retirement plans) would not be first-time home buyers. They would be the people who have already purchased a home,” one real estate official pointed out.

Ken Agid, a national real estate marketing consultant, said that currently more than 80% of all home sales in Orange County are made to second- and third-time home buyers. He estimated that only about a quarter of the remaining first-time home buyers actually have money invested in IRAs or 401 (k) plans.

“The people who tend to take advantage of IRAs are people who don’t need them,” he said.

Agid acknowledged, however, that the Dukakis proposal might help “a handful of people” who have various sources of cash and need just $10,000 more.

Taking what he described as a more “cynical” viewpoint, Agid suggested that the infusion of new money into the Orange County housing market could have the negative effect of stoking inflationary flames.

“Adding a few more buyers into a market already flooded with prospective buyers might have the net effect of driving up prices a little higher,” he said.

Tom Motter, director of marketing for Century 21 of the Pacific, took a more positive view on the potential impact of a new source of down payment funds.

“First-time home buyers are always struggling. The ones we get in typically are pushing their finances to the limits. So a little bit can make a big difference,” Motter said.

He and other real estate experts agreed, however, that the Dukakis plan would prove more helpful to first-time home buyers in lower cost markets like San Bernardino and Riverside counties--and even more significant in parts of the Midwest and Southeast where median home prices are still under $100,000 for a single-family detached home. “In other parts of the nation where you have $60,000 to $70,000 average sales prices, there is no question that the program would be of benefit,” said Tom Williams, president of Coldwell Banker’s residential real estate operations in Southern California.

“But the only place it would be of any real value in Southern California,” Williams added, “ would be in outlying areas like Bakersfield and San Bernardino and Riverside counties--not in the major metropolitan areas.”

Ken Ross, co-managing partner with Kenneth Leventhal & Co., a Los Angeles-based accounting firm that specializes in real estate, said he believes that the Dukakis proposal is moving in the right direction but doesn’t go far enough.

Ross said he is developing his own plan for aiding first-time home buyers and will present it next month to the annual meeting of the Urban Land Institute in San Francisco and then to whoever is elected President.

“I have been suggesting we need some kind of national finance agency which would give the (first-time home buyer) a further supplement for financing the down payment,” Ross said. He said such an agency could sell bonds and lend the proceeds without interest to first-time buyers, to be paid back when the houses are resold.