Los Gatos Weekly-Times

Homes

Housing affordability drops for first-time buyers

By Rose Meily

The percentage of first-time buyers in California able to afford a median-priced home stood at 23 percent in the second quarter of 2006, compared with 30 percent for the same period a year ago, according to a newly developed index recently released by the California Association of Realtors.

The First-time Buyer Housing Affordability Index measures the percentage of first-time buyer households that can afford to buy a home in California. The index is the most fundamental measure of housing well-being for first-time buyers in the state.

The minimum household income first-time buyers needed to purchase a home at $482,000 in California in the second quarter of 2006 was $98,720, based on an adjustable interest rate of 6.48 percent and assuming a 10 percent down payment. First-time buyers typically purchase a home equal to 85 percent of the prevailing median price. The monthly payment including taxes and insurance was $3,290 for the second quarter of 2006.

In the Santa Clara region, the percentage of first-time buyers able to afford a median-priced home stood at 26 percent during the second quarter of 2006, compared with 33 percent a year ago. The minimum household income first-time buyers needed to purchase a home at the median price of $675,750 was $138,400. The monthly payment, including taxes and insurance, was $ 4,610.

At 39 percent, the High Desert region was the most affordable region in the state, followed by the Sacramento region at 38 percent. Santa Barbara was the least affordable region in the state at 14 percent, followed by San Luis Obispo at 17 percent.

Judy Hamilton, a mortgage broker with Bankers Network, says when purchasing a home, a buyer usually counts on two things--appreciation of the home and an increase in income over the life of owning the property.

"While home appreciation has slowed, buying a home continues to be a good investment," said Hamilton, who has been in the real estate and mortgage loan business for 28 years.

"It's never a bad time to buy a home in California, as long as you're not looking to flip a house as an investment in six months. It's like the analogy of gold stock, but you need to hold on to it three to five years in order to see appreciation," Hamilton said.

A big part of the home buying process is education, she noted. "You need to do what's best for your long-term financial goals. There are smart products available depending on your situation. As the saying goes, 'There are different strokes for different folks.' Not one loan is perfect for everyone."

The traditional 30-year fixed rates loans are safe because interest rates are still low and under the 40-year average, Hamilton said, adding, "I expect we will see lower rates again. Mortgage rates are expected to hover in the 5.5 to 8.5 percent range for the remainder of the decade because of low inflation pressures."

Interest-only loans have become popular and are beneficial if appropriately used, she said.

"Interest-only loans buy you time," Hamilton said. "Separate the interest from the principal, do some asset management, so instead of paying the bank the principal, I would recommend you take the principal, put it aside in a safe asset bearing account like a CD, which will grow with a compounding of the interest."

John Tripp, president of the Silicon Valley Association of Realtors, said lenders today have many products that can help individuals purchase a home and he echoed Hamilton's remarks. "Financing at adjustable rates can get you in and buy you time at a lower rate so you can save that money. Don't go out and spend that money," said Tripp, who is with Foundation Trust and belongs to the association's Los Gatos/Saratoga District. "It's important that people look at three years down the road, put aside that money so they are more prepared for the adjustments that can happen to their loan."

Hamilton advised, "Visit your lender and take the time and listen to the options. Don't jump in or assume you may know what's good for you. Give your lender an opportunity to advise you; that's what we do best is provide value for everybody. We seek to individualize options for our clients, and I think a lot of us do a very good job at that."