The middle-class housing squeeze

Special to The Times

It used to be one could graduate from college, get a job, save a little and buy a home. But in today’s real estate market, where the median California home price in January was $405,720, the middle-class dream of homeownership is moving out of reach for many.

Only 22% of households in Los Angeles County -- where the median price of a single-family residence is $390,830, according to the California Assn. of Realtors -- could afford a home in January. And only 20% could in Orange County, where the median price of an existing home is $523,380. A year ago those percentages were 30% in L.A. County and 25% in Orange County.

The gap between median income and median home prices is wide and appears to be widening. Since 1989, the median household income in Los Angeles County has increased 53%. But during the same period, the median price of a single-family residence has increased 91%. In Orange County, median income has increased 68% while the median price of a single-family home has risen 134%.


So how can Southern California households with annual incomes between $50,000 and $100,000 buy in today’s real estate market?

“With great difficulty, sacrifice and caution,” said Christopher Cagan, director of research and analytics at First American Real Estate Solutions in Anaheim. “Even with a husband and wife both working, it can be very difficult.”

“It wasn’t long ago that lower- and moderate-income people were being priced out,” said Doug Perry, senior vice president of Countrywide Home Loans. “But now it’s the middle class, as the average home price has outpaced income levels.”

Some shoppers are choosing to call it quits, even those who earn twice the median income, which projects will be $47,643 for Los Angeles County and $66,547 for Orange County in 2004.

Kristin and Jayce Murphy, after looking for a year and bidding on four homes, have decided to stay in their Fairfax area rental and wait it out.

The couple’s household income of about $100,000 annually is too high for them to receive FHA help but not high enough for them to buy a satisfactory home at today’s prices. Their decision to give up came after realizing they were putting offers on homes they felt were subpar.


“We were really settling,” said Kristin Murphy, 38, nonprofit project manager at KCRW-FM. “We would say to ourselves, ‘Gee that house is only $350,000 for 700 square feet and one bedroom and one bath.’ ”

Even searching in a wide geographic area didn’t help. The couple looked in Hollywood, Glendale, Eagle Rock, Pasadena and Altadena. “We were all over the map,” she said.

Competing with multiple offers -- real estate agents routinely report bidding wars with 10, 20, even 30 offers coming in for a listing -- also factored into calling off the search. Buyers who could be the most flexible, with cash and no contingencies, seemed to always win out.

The Murphys quickly discovered that they would have to bite their tongues about the most fundamental of issues, such as asking a seller to repair a cracked foundation or replace old electrical wiring. In fact, with so much competition for so few houses, Murphy said she and Jayce felt they had little time to carefully consider the most important purchase of their lives.

“I can understand multiple offers,” she said, “but when you are competing at this level, it becomes so psychological. I don’t even think you could make a good decision. We will buy a home eventually, but we are not going to have our arms twisted by the conditions of the market.”

Part of the pressure to buy is because of interest rates still under 6% for a 30-year fixed mortgage. Sweetening the deal in some cases are parents willing to assist with down payments. And lenders are bending over backward to help shoppers maximize their buying power, stretching ratios of income compared to housing expenses more than ever and offering more loan options and creative financing. Among them are loans with 0% down, adjustable rates, interest-only loans and hybrid loans, which are fixed for a time and then become adjustable.


While these alternatives may look good, they also can create situations in which buyers get in over their heads.

“People are qualifying for loans today, dangerously so,” said Stuart Gabriel, director of the Lusk Center for Real Estate at USC. He cautioned that with a moderate increase in interest rates and if housing prices were to ease back a little, “some homeowners might find themselves with more mortgage debt than the value of their home.”

With a baby due later this month, Linda and Shaun McCray factored the cost of day-care into their decision to give up their home search.

“In Los Angeles, we would look at starter houses in the $700,000 or $800,000 range,” Linda McCray said. “We saw homes that were perfect starter houses, but they weren’t priced as perfect starter houses.” The monthly mortgage, on top of child care, would have been beyond their budget, even though their combined annual income exceeds $100,000.

So they’ve decided to keep their $1,250-a-month rental and wait out the market. “We hope we will get something in foreclosure some day,” she said.

Other young couples are deciding to go where their dollars stretch further. David Papini, 29, along with his fiancee, Joy Scissom, 25, after looking for more than a year and making offers on about 20 homes, have decided to move to Las Vegas instead.


“The Los Angeles housing market is horrible,” said Papini, who works as an engineer for Lockheed Martin in Palmdale. He and Scissom are living on his $80,000-a-year income while she works toward her doctorate in psychology.

When spending the recent New Year’s holiday in the Las Vegas area with Scissom’s parents, the two decided to look at what the growing desert community had to offer. They liked what they saw.

Soon after, they put an offer of $250,000 on a four-bedroom, 2,600-square-foot house with a three-car garage, built in 1994. “In Los Angeles, you couldn’t touch that house for $700,000,” Papini said.

The move to Las Vegas will require Papini to find work there. And the two won’t even be able to move into the house completely until Scissom finishes her degree in December, meaning they will have to maintain their rent here and manage the new $1,086 mortgage. Papini is philosophical about the arrangement. “It’s absolutely cheaper to have two households this way than living in Los Angeles.”

Although the market for buyers may change in time, for now the best that most experts predict is a gradual slowing in the rate of home appreciation. But many are concerned about what the region will look like in 10 years if more potential buyers are priced out.

So what is a middle-class buyer to do? Look for pockets of affordable homes, keep credit clean and don’t be afraid to call mortgage and real estate brokers with questions, recommends Jim Hamilton, president-elect of the state Realtor group. “If people really want to be homeowners, they will find a way to make it work.”


Allison B. Cohen can be reached at