Homeownership Ebbing in O.C. and California

By DARYL STRICKLAND

May 19, 2000 12 AM PT

TIMES STAFF WRITER

Homeownership in America is reaching new highs, but the share of Orange County families who own their dwellings has dropped sharply for the second straight year under the weight of higher interest rates, skyrocketing prices and a dearth of new construction.

Though two-thirds of the nation’s residents last year lived in houses they owned, nearly 61% of the county’s residents--and only 55.7% of all Californians--held title to their homes, according to the latest report by the U.S. Census Bureau.

The ownership rate, a key measure of economic and social conditions, hasn’t budged in Los Angeles County and remains the lowest west of the Mississippi at 48.1%.

“Home prices are increasing much faster than incomes . . . and in the long run that could choke off potential growth,” said Esmael Adibi, a Chapman University economics professor and director of its Center for Economic Research.

The ownership rate indicates how many people have tapped into the American dream, set down roots in a community and started generating personal wealth, which also contributes to the community’s well-being.

In Orange County, the least-affordable county in Southern California for housing, the 60.9% ownership rate was down from 63.2% the previous year and 64.6% in 1997. Should the rate fall again this year, as economists expect, it would be an unprecedented third straight yearly decline.

Rising mortgage rates have hit 8.64% nationally, the highest in more than five years. That has limited the number of county households able to afford a typical single-family house in Orange County.

Indeed, based on income and mortgage rates, only about a quarter of the county’s households today could afford to buy an existing, median-priced house at $304,400, the California Assn. of Realtors said.

“It’s hard to see how, given that in many places prices are setting records and mortgages rates are higher, we’ll make progress in the homeownership rate this year,” said Stephen Levy, who directs the Center for the Continuing Study of the California Economy in Palo Alto.

The state, with its high-priced homes, has long lagged behind the nation in homeownership, but last year’s gap is the largest since the early 1980s--and it could get worse.

Preliminary Census Bureau statistics for the first quarter show the nation’s homeownership rate inching up to 67.1%. Reliable state figures were not available, but economists have little doubt that more Californians will be locked out as home buyers in the future.

The gap in ownership rates is so wide that “even affluent people can’t buy homes” in California, said Richard Green, a housing expert at the University of Wisconsin.

Income Rises, but Prices Rise More

The state had three solid years of gains, peaking in 1998 when 56% of the state’s residents owned their houses, according to the census report. But the mix of economic measures has differed greatly with those nationwide.

In many parts of the country, income gains have outpaced housing prices, creating more homeowners despite median housing prices of $133,400, according to the National Assn. of Realtors, a Washington trade group.

But California residents, especially those living in coastal areas, have experienced just the opposite. Home prices are growing by double-digit rates in the hottest markets, locking out tens of thousands of potential home buyers.

California has more metropolitan areas ranked among the least affordable places to live than any other state, a condition that will most hurt those trying to purchase their first home.

“First-time home buyers in particular will be curbed this year, and their limited ability to purchase will keep the [ownership] rate from going up,” said G.U. Krueger, an economist at the state Realtors group.

Consumers bid up housing prices because there was scant new construction statewide, analysts said.

About 250,000 new housing approvals are needed annually to absorb growth, economists said. But new housing starts remain mired near all-time lows, they said, as the state’s largest urban counties have fewer buildable lots and impose tougher land-use restrictions, which makes it harder to create housing for a growing population.

New jobs in the most populous areas are being created at a faster pace than housing. In Los Angeles, job growth outnumbers home building by a 4-to-1 margin, the state’s largest disparity, according to the Meyers Group, an Irvine firm that tracks housing developments.

Moreover, economists said, despite record employment levels, the percentage of those able to buy houses has been declining statewide as incomes rise at a slower pace than home prices.

The average California household earns $40,600 and can afford to purchase a $110,000 house. But the median-priced house in California costs a record $238,870, requiring earnings of roughly $67,600, the state Realtors group said.

Meantime, interest rates have risen 1.75 percentage points since last June. For every one percentage point rise, about 445,000 fewer Californians can afford to purchase a home.

In Los Angeles, each hike of one point excludes 111,000 residents from buying a median-priced house, 37,000 in Orange County and 9,650 in Ventura County, the Realtors group said.

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Fading Dream

Home ownership is dropping in California and particularly in Orange County at a time when the national rate is rising to record levels.

IN COMPARISON

Figures are percentage of people who own homes

United States: 66.8%

Orange County: 60.9%

California: 55.7%

By County 1999

Figures are percentage of people who own homes by county.

Los Angeles / Long Beach: 48.1%

Orange: 60.9%