The number of buyers who could afford a median-priced home in Southern California continued to shrink throughout 2004, widening the gulf between housing haves and have-nots.
“The bottom line is unless you have a chunk of change saved up or someone that can lend you money, it’s tough,” said Lorri Hamilton, 40, a Brea hairdresser who has been looking since August to buy in Orange County.
By one measure, California is home to the 11 least-affordable housing markets in the nation, and Southern California counties top the list. The National Assn. of Home Builders/Wells Fargo Housing Opportunity Index found the least affordable county nationwide in the third quarter of 2004 -- the latest period for which data are available -- to be Santa Barbara, followed by San Diego, Monterey, Los Angeles and Orange counties.
The percentage of households in Los Angeles County able to afford a median-priced home of $474,570 was 17% in November, down from 23% a year ago when the median was $382,190, according to the latest figures reported by the California Assn. of Realtors. The Orange County median for November was $633,340, with only 13% of households able to afford a residence, down from 18% a year ago. During the same one-year period, dramatic declines were posted in Riverside, San Bernardino and Ventura counties.
“With a $450,000 median home price,” said Leslie Appleton-Young, chief economist with the California Assn. of Realtors, “if you can save 20%, do the math. How many first-time buyers have access to that kind of money?”
Not only does a buyer need a hefty sum for a down payment, L.A. County buyers needed an income of $109,971 to qualify for a 30-year fixed-rate loan with 20% down on a median-priced home in November. In Orange County, the annual income needed was $146,763.
Although a limited number of special programs help teachers and other public employees, most first-time buyers are on their own. Some have used gifts from family members to bridge the gaps, while others have turned to creative financing options, including 0% down, interest-only and adjustable-rate loans. Some real estate agents are even picking up the slack.
K.J. Koljonen, with Prudential California Realty in San Diego, went beyond the call of duty for clients Rodney, who is an accountant, and Sadie Mutter, a Pilates instructor, when their deal on a $215,000, 700-square-foot condo near San Diego fell through 10 days into escrow.
The couple, both 29, appeared to be picture-perfect first-time buyers. Their annual combined income was more than $75,000 a year and they had a baby on the way. But they were still paying off $70,000 in school loans, and that debt became a deal breaker.
“Without help from family,” said Rodney, who spent six years in the Marine Corps after graduating from the University of San Diego, “realistically, the average person cannot put themselves through school, try to buy a house and have everything come out OK.”
The pair did get some help to pay down debt from their parents, but it wasn’t enough. What they needed was a break -- and they got it from Koljonen.
When the deal fell through, Koljonen bought the condo and came up with a plan for the Mutters to eventually buy the unit back through a lease with an option to purchase. Although Koljonen bailed out the couple, she benefited too.
The Realtor had lost a property in the San Diego area during the fires of the fall of 2003 and was looking for a replacement investment.
“She helped us and we helped her,” Rodney said of the business arrangement.
The Mutters pay Koljonen $995 a month. While the couple work on paying down their school loan debt, Rodney will remodel the condo’s kitchen and bathroom -- an estimated $20,000 in labor costs that Koljonen will later accept as a down payment should they want to buy the unit. Otherwise, Koljonen will just pay Mutter for his work.
Her actions may not be commonplace, but as affordability declines, other agents are reaching out to strapped buyers in many ways.
At the state level, the California Assn. of Realtors has raised $2.33 million since the establishment of its Housing Affordability Fund in January 2003. The fund can be tapped by local Realtor associations to help potential buyers with down payments, build homes through Habitat for Humanity or match grants through employer-assisted housing programs. The association’s goal is to help make homeownership a reality for more buyers and increase the housing stock by funding housing developments on land held in trust by nonprofits.
Koljonen, who serves as the chairwoman of the San Diego Assn. of Realtors Housing Opportunities Committee formed in 2003 to help come up with ways to bridge the affordability gap, said the group is encouraging companies to find ways to make homeownership easier for employees.
Matched savings programs are being discussed, as are employer-provided gifts and grants to assist employees with down payments and closing costs.
The group is also promoting discussion of the financial realities of first-time homeownership in high school curriculums.
“We tell students, ‘You won’t get into a house right after college like your parents did,’ ” she said.
Other Realtor associations are reaching into their own wallets to help.
The Orange County Assn. of Realtors will put into place this year a pro bono program where real estate agents, title and escrow companies will waive commissions or donate those fees back to buyers who need a little extra help. The program will be geared to buyers who need a little extra cash -- 3% to 5% of the purchase price -- to qualify for a loan. Initially, those enrolled in the buyer education program through the Fair Housing Council of Orange County will be considered for the program. Details on tax implications are still being ironed out.
“We are just seeing if we can push these folks up the ladder,” said David Silver-Westrick, chairman of the Orange County Assn. of Realtors’ Housing Affordability Task Force. “Everyone but the very rich in Orange County is going to rent? That is not a world that I can imagine.”
Addressing the problem from a different angle, members of the Beverly Hills/Greater Los Angeles Assn. of Realtors have raised $100,000 to build a home now underway in Compton through Habitat for Humanity.
“I wanted my members to understand the crisis that we are undergoing,” said Rosanne Howard, association president. “And that the problem is just getting worse.”
So who is being priced out of homeownership?
Experts point to the working middle-class: firefighters, teachers, police officers and educators, for example. Singles are also struggling, as are families with children.
“We do know that the cost of owning a home has gotten to a point in California that it is affecting people at all levels of affluence and a variety of professions,” said Mark Baldassare, research and survey director with the Sacramento-based Public Policy Institute of California.
“Most renters would like to own and many feel their hopes cannot be realized today in the part of California they want to live,” Baldassare said of respondents to the group’s statewide study, “Special Survey on Californians and Their Housing.” “Many feel the cost of homes have gone way beyond their means.”
Hamilton, the Brea hairdresser, certainly feels that way. She moved back into her childhood home in Orange last summer, after her landlord decided to put the Orange condo she was renting up for sale.
“It’s like I never left home,” she said. “I am back sleeping in my little bedroom.”
Hamilton, who makes about $35,000 a year, has looked at a dozen homes and condominiums the last two months in the $350,000 price range -- a stretch for her even using creative financing.
Many of the prospects she’s seen, Hamilton said, were in areas she felt were unsafe or “seedy.” At least half were condos that had been neglected and needed work. In some of them, she said, “I’d rather walk on cement than the carpet.”
For now, Hamilton said she would not let Orange County prices force her to look outside the area. She wants to buy in the area she grew up in.
“Commuting is not an option,” she said. Instead, Hamilton plans to wait out the market and build up her savings.
While home shoppers like Hamilton and the Mutters bide their time, experts agree that what is needed most is more housing. The California Building Assn. estimates that new housing starts in 2005 are going to be about 40,000 short of what is needed.
And with much of Southern California already built up, developing more places for people to live will require greater mixing of retail with residential units and adapting old commercial and industrial buildings into residential units, said Julie Bornstein, executive director of the Campaign for Affordable Housing a nationwide organization.
And if not?
“Our young people can’t come back to the areas where they grew up,” she said. “They will all go and live somewhere else.... Companies will not be able to find the appropriate labor pool for the jobs they have. It tears down the fabric of our society.”
Allison B. Cohen can be reached at firstname.lastname@example.org.