O, woe is me, To have seen what I have seen, see what I see!
I was feeling quite Opheliaesque following the release on Friday of the California Association of Realtors report on affordability for entry-level housing for the second quarter. And what struck me was not so much that 67% of households can now afford a home in California— that’s nearly three times the percentage two years ago—but the stunner in the report was that the minimum household income needed to purchase an entry-level home ($224,180) in the state in the second quarter was $39,930.
It appears that the ecstasy of rampant appreciation in real estate values has now been replaced by the ecstasy of affordability. If only.
What affordability should mean to me is that I could, for the first time in my life, afford to actually buy a home. Considering I spent my career as a journalist, homeownership was always out of reach and out of mind. Even at the height of my career, when I served as editor of a profitable real estate magazine, I earned about half what was required for a median-priced home, and my income was well short of getting into an entry-level home. It was the height of the market, and I was sitting on the sidelines—it would have turned out to be a wise choice… had I been given the choice. Condominiums, too, at the time were out of reach; particularly considering the ridiculous HOA fees you get slapped with each month.
In case you don’t know, journalists are woefully underpaid. Even the most experienced of my former colleagues at the Long Beach Press-Telegram would find it a tight squeeze to make the monthly payments on an entry-level home.
Unfortunately for me, I’m sans job, and even the least-reputable lenders couldn’t get me financed. Despite that, my family income is just about enough for an entry-level home if—the big IF—I could qualify. In fact, depending on whom you speak with, the post-meltdown lending standards are too stringent for many people to qualify for a home, even if they are employed.
Celia Chen, senior director at Moody’s Economy.com, was quoted on Monday in an article at mortgagenewsdaily.com saying that even with low interest rates “lenders are still being very cautious. Lenders are just being careful about who they lend to.” I’ve spoken with several real estate agents who say banks are increasingly difficult to deal with, and that sales are too often upended by financing falling through due to stricter lending standards, and/or timid bankers.
That brings us back to CAR’s entry-level price, which is based on an adjustable interest rate of 4.92% and assuming a 10% down payment. Twenty-K is a big chunk of change for your average first-time buyer, and when you get into that adjustable rate it means your rates are likely to go up from the historic lows that the rare lucky homebuyer is being treated to nowadays.
And while a special $8,000 federal tax credit is being offered to first-time homebuyers who make their purchase before 2010 begins, and in some cases, loan officers say they’ve seen applications increase by as much as half, not everyone is getting approved.
But not everyone feels that the lending pipeline is abnormally constricted, and that it is the abnormalcy that has left the market.
“Qualifying for a mortgage today is not much more difficult than it was 15 years ago before stated income loans hit the market and before the automated underwriting for Fannie Mae and Freddie Mac approved what amounted to sub-prime loans as conventional,” states Dennis Smith, a broker with Stratis Financial in Huntington Beach. “It is difficult to qualify and obtain a loan if you do not have any funds for down payment, steady and verifiable income, poor credit and high debt-to-income ratios. In other words if you have saved money, paid your bills on time and have reasonable debt for your income and have a job you can qualify for a loan today as easily as you could at any time.”
It’s the “have a job” part that trips me up. It also trips up the one-in-10 who are unemployed among the nation’s workforce. And things are even more severe in California, according to the Bureau of Labor’s June statistics, which show unemployment in this state reached 11.6% in June [Ed. note: 12.5% in Long Beach]. July’s stats are due out Friday.
Smith notes that even though most first-time buyers have limited funds for down payment and closing, “FHA is still financing with as little as 3.5% down, Fannie Mae and Freddie Mac still have programs with 5% down—though mortgage insurance is difficult in California with many insurers pulling out and others not insuring condominiums.”
What has led to the belief that qualifying is so hard to come buy is because it was so easy, “too easy,” Smith argues, to come by from 2000 through 2008. “Many professionals in the industry have only known that type of market, where mortgage money was easy to get,” he adds. “Those of us in the industry for a long time know the current market is not much different than it was before the stated income products were introduced to the market and Fannie and Freddie severely loosened their guidelines through their automated underwriting engines.”
CAR’s report states that first-time buyers typically purchase a home at about 85% of the prevailing median price, and that the monthly payment including taxes and insurance was $1,330 for the second quarter of 2009. I pay more than that in rent each month for my two-bedroom apartment.
By comparison, the minimum income needed to purchase an entry-level home ($329,120) in California in the second quarter of 2008 was $62,870 with a monthly payment of roughly $2,100, according to CAR.
And in the second quarter of 2007, when the percentage of households that could afford to buy an entry-level home in California was at a bleak 24%, the minimum household income needed to purchase an entry-level home ($504,080) was $101,550—that yielded a monthly payment of $3,380.
That means required monthly payments have plummeted more than $2,000 per month. It prompts one to ask, what can you get in Long Beach for about $1,300 a month?
There are 223 properties listed on the MLS for under $225,000 that would fit within CAR’s entry-level figure. Most listings are condominiums, but there are several single-family residences listed, including a home at 1040 N Virginia Ct. in the Alamitos Beach neighborhood for $175,000. The two-bedroom, one-bathroom, 700-square-foot home is down from its original list price of $225,000 near the beginning of the year. Two-hundred-and-twenty-five-
You gotta start somewhere.
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