California Sees Drop in Home Affordability

The percentage of Californians who can afford to buy homes fell last year to its lowest level since 1992 after holding steady for three years, the California Assn. of Realtors said Wednesday.

The Realtors’ survey found that the percentage of California households that can afford to purchase a home slid three percentage points last year to 37% from the previous year, compared with a national rate of 55%.

In Los Angeles County, only 39 of 100 households could afford to pay the median price, the point at which half of home sale prices are higher and half lower.

Such a gap gives other big Western cities a competitive advantage by making California seem less desirable to many families and threatening the state’s economic prosperity.

By comparison, the affordability rate for Denver stood at 54% last year. It was 53% in Portland, Ore., and 55% in Seattle.

“After considerable progress made in affordability trends in the 1990s, it’s now beginning to erode again” in California, said G.U. Krueger, an economist at the Realtors group who compiled the report.

For every percentage-point drop in affordability rates, he said, 115,000 households are priced out of the market.

In Southern California, the survey found rates either stagnant or worsening. They ranged from Riverside and San Bernardino counties, where the affordability index fell to 53%, to Orange County, where it had fallen to 34%--its lowest level since 1991.

Rising home sales, even in the face of higher prices and mortgage interest rates, has made the affordability issue especially acute in Orange County.

Underscoring those concerns, a real estate research firm reported Wednesday that resale home prices in Orange County rose to their highest level ever in February--on a pace that could put the typical home price at around $280,000 by the end of the year.

Yet the number of homes sold there last month was the highest for a February since Acxiom/DataQuick Information Systems Inc. first started keeping figures in 1988.

It bolsters what many economists believe: Orange County home prices will continue to rise. February’s 10.6% price gain was one of the highest year-to-year increases.

Many economists had thought that higher interest rates, coupled with rising prices, would dampen demand for homes.

Home prices have been rising as the state’s economy produces jobs faster than builders can put up new homes. During the 1990s, Southern California registered seven of its 10 slowest home-building years since World War II.

“We’re not building anything like we did in the past,” said John Burns, an analyst at Meyers Group, an Irvine real estate research firm. “There’s just no supply.”

Statewide, the number of buyers outnumbered new-home approvals by 64%, Burns said. Moreover, Burns said there were three buyers for every new home permit issued in Los Angeles County, and three buyers for every two permits issued in Orange County.

The Realtors’ findings coincide with another study showing that fewer people are moving to those California metropolitan areas where housing costs are highest. The state has the second-lowest homeownership rate, beating out only New York, according to the U.S. Census Bureau.

“I foresee further erosion in affordability if home prices continue to go up the way they have been over the past year and a half or so,” Krueger said. He added that interest rates are likely to make matters worse at least until the middle of this year.

“We’re not yet at the dismal state we were in 1989,” he said, “but that is a possible future.”