Los Gatos Weekly-Times

Homes

Housing affordability continues to be a concern

By Rose Meily

Affordability concerns continued to affect the residential real estate market in California, with the share of first-time buyers declining to their second-lowest level, from 30.5 percent in 2005 to 27.1 percent in 2006, according to a report released today by the California Association of Realtors.

Based largely on the association's 26th annual housing market survey, "The State of the California Housing Market" examined trends in buyer and seller behavior during 2006, a transition year in which statewide sales of existing single-family homes decreased 23 percent, while price appreciation slowed dramatically as the year progressed.

The survey also found that the share of buyers who used a second mortgage climbed from 38 percent in 2005 to 43 percent in 2006, more than triple the percentage since 2001 and the highest percentage since 1982. The use of alternative loan products also registered a sharp increase.

"Home buyers with zero-down payments increased significantly, from 4.5 percent in 2000 to 21.1 percent in 2006," said Leslie Appleton-Young, California Association of Realtors vice president and chief economist. "Two out of five first-time buyers made a zero-down payment on their home purchase, while just one in 10 repeat buyers purchased their home with no down payment."

Twenty-nine percent of first-time buyers purchased a condo or a townhome in 2006 compared with 33 percent in 2005. The proportion of first-time buyers who purchased a single-family home increased slightly, from 61 percent in 2005 to 65 percent in 2006, but still remained significantly below the 72 percent recorded in 2004. The median first mortgage amount for first-time buyers increased 6.8 percent from $347,800 to $371,600.

Housing affordability continues to be a concern, especially in Silicon Valley, said Silicon Valley Association of Realtors president Mark Burns. He said in Santa Clara County demand for housing is high, but new housing developments, mostly condominiums, are still out of reach for many individuals and families.

"It costs much more to live here than most other areas in the country," said Burns, who has been selling real estate for 21 years. "As it becomes more expensive for essential services providers like police, firefighters, government employees, teachers and others to live and work here, economic pressure will increase for communities to provide subsidies for housing costs for our essential labor force that cannot afford to live here otherwise. First-time homebuyers programs and other programs for qualified individuals sponsored by public and private entities throughout the valley currently help bridge some of the gap in affordability and will continue to do so."

In the Santa Clara County region, the California Association of Realtors disclosed the percentage of first-time buyers able to afford a median-priced home stood at 26 percent during 2006, compared with 33 percent in 2005.

Burns outlined the problem facing the county.

"It would be foolish to believe that we can suddenly cause home ownership to become affordable for everyone who wishes to live in Silicon Valley," Burns said. "If that were so, everyone else's home in the valley would lose the vast majority of its value, causing a potential economic cataclysm for the region."

Burns said a "fine balance" needs to be found and maintained when it comes to helping provide affordable housing.

"We're getting better at it every year, but it will always be a problem because of what Silicon Valley is about. It is one of the greatest places in the world to live in and work in. There is simply a price to pay for that luxury," he noted.

Mortgage rates affect home buying, and as interest rates climb, pressure on the housing sector will grow, demand will slow and higher mortgage rates make it more difficult to buy a house, said Judy Hamilton, Bankers Network mortgage planner.

"It's difficult to determine what rates will do this year," Hamilton said. "Depending on what you read or whom you listen to, one will get different opinions on this. The $300 billion deficit is mostly tied to the war in Iraq and continues to grow, and investment from other countries also impacts rates."

But Hamilton remains optimistic.

"I think this will still be a good year with plenty of loan products that will help consumers buy and sell their properties. We'll continue to work hand in hand with the Realtors to do our job of helping our clients with the purchasing of homes," Hamilton said.

The typical California first-time homebuyer earned an annual household income of $80,000, and purchased a home with a historically high median price of $450,000.

MARKET
SURVEY
EXAMINES
TRENDS

The California Association of Realtors' 26th annual housing market survey, "The State of the California Housing Market," examined trends in buyer and seller behavior during 2006, a transition year in which statewide sales of existing single-family homes decreased 23 percent, while price appreciation slowed dramatically as the year progressed.

Some key findings from the study include:

* The median down payment declined 8.8 percent from $80,000 in 2005 to $73,000 in 2006, despite an increase in the median home price. This was the first time since 1995 that the median down payment dropped.

* The median down payment for first-time buyers decreased from $25,000 in 2005 to $10,000 in 2006, while the median down payment for repeat buyers decreased from $119,000 to $100,000.

* The median loan amount for first mortgages continued to increase in 2006 along with rising home prices, climbing 8.2 percent from $384,000 to $415,500 among all buyers.

* The median first mortgage amount for first-time buyers increased 6.8 percent from $347,800 to $371,600, while the median first mortgage amount for repeat buyers increased 8.1 percent from $400,000 to $432,500.

* More homebuyers used 100-percent financing to purchase their home. About a fifth of all homes purchased (21.1 percent) were financed with a zero-down-payment mortgage compared with 19.7 percent last year. Recent use of zero-down mortgages has increased significantly since 2000, when they were used by just 4.5 percent of buyers.

* The typical first-time buyer had a median age of 35, earned an annual household income of $80,000, and purchased a home with a historically high median price of $450,000.

* Fifty percent of all first-time buyers were married, and 35 percent of them were single. The share of married first-time buyers has been declining slowly but steadily since 2000. Meanwhile, first-time buyer households with two or more individuals declined from 16.2 percent in 2005 to 13.5 percent in 2006.

* The typical repeat buyer had a median age of 45, earned an annual household income of $120,000, and purchased a home with a historically high median price of $618,000.

* Six of 10 repeat buyers were married, a quarter of them were single, and one of eight were buyer households with two or more individuals. Repeat buyer households with two or more individuals have increased from 6.6 percent in 2002 to 12.7 percent in 2006.

* Almost half of these home buyers were married (47 percent), 37.6 percent were single, and 13.4 percent were households with "two or more individuals."

* The typical home seller was 50 years old, had a two-member household, earned an annual household income of $100,000, and lived in the home for five years before selling it.

* Fifty-five percent of all sellers were married and 27 percent were single. Households with two or more individuals accounted for 12 percent of all sellers in 2006, virtually unchanged from that in 2005.

Information provided in this column is presented by the Realtor members of the Silicon Valley Association of Realtors at www.silvar.org. Send questions on any topic to rmeily@silvar.org.