Fewer Seen Able to Afford a Home

The percentage of California households able to afford a median-priced home will sink to a record low this year as home prices and mortgage interest rates edge up, a real estate group said Thursday.

“We think affordability will reach a new low this year,” said Robert Kleinhenz, an economist with the California Assn. of Realtors. “I suspect we will get in the 10% to 12% range and then hold steady.”

Kleinhenz said his group’s measure of California households that could afford to buy a median-priced home in December with a 20% down payment and traditional financing was 14%, unchanged from November and down from 19% a year earlier.

At 14%, the measure matched a record low notched in mid-1989, reflecting the effect of home prices in California advancing at double-digit rates in five of the last six years, Kleinhenz said.

The median price of a home in California was $548,430 in December, compared with the national median of $209,300 in the same month, he said.

To afford a median-priced home in California in December, a household would have needed total annual income of $134,200, compared with income of $51,200 to buy a home selling at the national median price that month, Kleinhenz said. The formula does not account for any equity from a previous home that a buyer may bring to a transaction.

Home buyers in California will have to dig deeper into their savings to buy houses this year despite a projected slowing in the rate of price increases, he added. The Realtors group projects that California’s median home price will increase 10% this year. Kleinhenz said the statewide median home price rose 16.4% last year and 21% in 2004.

Rising home prices and interest rates will slow home sales in the state, Kleinhenz said. His group expects sales this year to be 2% below last year’s level.

A sales slowdown already has taken hold in the San Diego area, one of the most overheated home markets in the nation.

Although San Diego home sales may be slowing, the area’s high prices are holding up, contributing to the low statewide affordability measure tracked by the Realtors group, said economist Alan Gin of the University of San Diego’s Burnham-Moores Center for Real Estate.

“We’re definitely seeing a slowdown here,” Gin said. “Sales are down and the number of days on market are up. But we aren’t seeing any serious signs of falling prices.”