JUST OUT OF REACH : Prospective Buyers Are Discovering That a First House Can Be an Elusive Dream
“It’s so important for morale, for the family, for everything American, to own a home.”
--Aspiring home buyer
“First-time home buyers, forget ‘em -- unless Mom and Dad come to the rescue.”
--West Valley realty agent
A year ago, Ted and Ann might have seemed ideal buyers for a San Fernando Valley starter home. An accountant and a film company administrator, they earned $80,000 together annually and had the cash for 10% down on a $160,000 property.
Although there wasn’t much in their price range (last year the average price for a Valley home was $187,287), they liked two houses enough to bid on them. Both times they lost, to buyers who paid more than the asking price and had more cash to put down.
Today, says Ann, 31, who was too embarrassed by the situation to allow her real name to be used, both homes have appreciated beyond the Smiths’ reach while the couple’s cash reserves have diminished.
Though their income is well above that of the average Valley household, Ted and Ann’s problem reflects a growing trend. With real estate prices soaring, agents say fewer people than ever before have the down payments or the salaries to buy in at the bottom. Even those people who enjoy good salaries--$40,000 or $50,000 a year--and comfortable life styles are being shut out. Meanwhile, pressure to own is increasing.
The market today is a fast-moving train,” said Judy Marshall, a Sherman Oaks real estate salesperson. “You’ve got to jump on the caboose and work up or you’ll get left behind fast.”
Just how far and how fast the market has already moved is evident in a 10-year price survey provided by the San Fernando Valley Board of Realtors.
Between 1978 and 1988, the average home price rose 160%, from $81,272 to $212,310, about 16% a year. A 13.3% increase in the first eight months of 1988 could become 21.2% for the year if the market continues at its present rate.
Valley incomes, according to National Planning Data Corp. (a New York-based firm that studies population trends) figures, have not kept pace. During the past nine years, average household incomes have risen only 8% a year, from $27,770 in 1979 to an estimated $48,132 for 1988.
Estimates vary on prices of starter homes. Marshall puts them at $170,000 to $200,000 in the north Valley, $200,000 to $250,000 in the West Valley and $160,000 to $200,000 in North Hollywood. Larry Newton, another Sherman Oaks-based salesperson, reports a $160,000 to $190,000 range for Sunland-Tujunga. Madonna Fowler, whose sales territory is Burbank, says they range from $225,000 to $250,000 in her area.
To afford even a $190,000 home, said Craig Alan-Lee, a loan agent for Sierra Federal Savings and Loan in Van Nuys, a buyer must have a minimum of $19,000 cash for a down payment, another $5,700 for closing costs and a yearly income of roughly $54,000 to pay the mortgage. Fewer than 19% of Valley households earn such an income.
Many Valley residents bought their homes years ago, when incomes and housing prices were more compatible. Charles Shapiro, a 33-year-old Van Nuys actor, grew up in a Granada Hills home his parents bought in 1957 for $25,000.
Recently, the house was reappraised “in the $260,000 to $280,000 range,” Shapiro said. “Most people I know grew up in houses,” he added, “and almost none of us can follow that dream.”
With a combined annual income of about $36,000, Shapiro and his artist wife, Beth Hoffman, 36, have been house-hunting since 1985 and saving down-payment money, a difficult task with their $900 monthly rent. Eventually, Shapiro says, they will probably borrow from his parents--an increasingly common recourse among young buyers.
“At least three-fourths of my first-timers get help from parents,” said Newton.
At Sierra Federal, family contributions have become so prevalent that the company now has a pre-printed gift form to speed the process of documenting the source of the funds.
For those who can’t count on outright gifts, joint borrowing is on the rise. “People are doing back flips to close deals,” said Ellie Koops, a vice president at Promenade Escrow Company in Woodland Hills. “This means bringing in two or three more people as buyers--mothers, brothers, sisters, cousins.”
Contributing to the sense of urgency, Koops said, is the prevailing “seller’s market,” which means, “there aren’t many houses available for the number of buyers,” she said. “To find something you like and then get a seller to sell to you are virtually impossible.”
With sellers so choosy, said Alan-Lee, even qualified first-timers often lose out to second- or third-time buyers with more cash to put down.
Typically, he said, new buyers have only 10% down, which means greater scrutiny by lenders of their loan applications and thus greater likelihood of rejection--all at a time when most sellers are eager to close the deal and apply their profits to another home.
“It’s so discouraging,” mourned Janet, 44, a Woodland Hills garden designer who also declined to give her real name. With her construction worker husband, she has saved $12,000 toward a down payment on a first home. “You build the money up; you seem to be getting close, but it gets chipped away by insurance bills and car problems.”
Felicia Wellborn, 34, a former paralegal who became an escrow officer in the hope that commission earnings would boost her home-buying potential, compares saving for a home to “the proverbial carrot before the donkey on a treadmill.” By sharing a Woodland Hills apartment with her sister, she estimates she might save a down payment in two years, “but then prices will be higher.”
Both Janet and Wellborn describe a sharp narrowing of expectations as to what their dollars will finally buy. “I wanted four bedrooms, three baths,” said Janet, who has two sons in their 20s and a 3-year-old daughter. “I’m down to a two-and-one with no yard.”
Neither woman, however, will concede on the location they want: West Valley, preferably Woodland Hills, primarily for safety reasons. And therein, said Larry Newton, lies the rub.
“A lot of people won’t downgrade their living conditions,” he said. “They’ll keep renting in Studio City--and wearing great clothes and driving Beemers--instead of buying in North Hollywood. The time to buy is always now, and it takes compromise and sacrifice.”
Recent Trends
Whether the time truly is right, given record-high prices and an election--an event, experts say, that could contribute to a climate in which interest rates might rise--some would-be buyers have been spooked by recent real estate trends.
Mark Wallengren, 33, a disc jockey for KOST-FM radio who lives in Burbank, described “the wild frenzy” of last spring when “everyone was buying everything.” With an adequate salary and the cash for a down payment, Wallengren joined in, seeking the tax advantages of owning a house. For six months he looked at homes and condos from Burbank to Van Nuys that were priced from about $200,000 to $230,000.
“Basically, for that, I saw garbage,” he said. “People told me I was a fool, but I decided I wouldn’t give up half my income--and live, breathe, sleep and die--for a junk house.”
Instead, he’s continuing to save, and “hope the market corrects itself.”
His friend Ozzie Munoz couldn’t wait. A year ago, he and his pregnant wife, Linda, 34, who have a 1-year-old daughter, Roslyn, felt their North Hollywood apartment was bursting at the seams. With a combined income of $55,000 and $18,000 in savings, Munoz, a hospital technician, and Linda, a phone company representative, looked at Valley properties for seven months.
“Because of our family,” said Munoz, 34, “we wanted a nice home in a safe neighborhood. In the Valley that meant big bucks. All we could buy was something trashed-out on a beat-up street.”
His solution? Canyon Country, where $140,000 bought a 15-year-old, three-bedroom, two-bath house that Munoz calls “immaculate.”
While not every workaday commuter would drive the extra miles to Canyon Country, Barbara Quinn, a Woodland Hills real estate salesperson, encourages new buyers to look seriously at their alternatives. If a home is out of reach, she said, “consider condos.”
“Beg, borrow--do whatever you can,” she said. “Just don’t give up till you’ve got something to call your own.”
