California Is the
world's 6th largest economy. It is
one of the dominant forces in the U.S. national economy and pays more into the federal
treasury than it receives in direct monetary benefits. California contributes about 17% of the United States Gross
Domestic Product (GDP). The median
price of homes is approaching $500,000, with some areas as high as
$650,000.
Isn't it about
time that California is declared a high cost state like Alaska and Hawaii to
provide more access to capital for homebuyers?
This will allow FHA loans to be underwritten and provide much need access to capital. There is a serious affordability problem in California that I sometimes feel that many in the real estate community are in the dark towards or just in denial about the factors contributing to the current housing market conditions. You will often hear from agents anf brokers of the lack of the medias optimism, the low absorptions rates, buyer's reluctance, seller's unrealistic expectations and other issues that completely ignore the core issue of affordability. To hit the mark you must see the target.
Here are some research and
facts:
Did of do you
realize since the run up in housing prices beginning in the 1970’s that a
borrower who today earns $100,000 cannot conventionally qualify for a median
price home in California?
It requires almost $137k in per annum income to conventionally qualify for a median priced ($500,000) home in California, as of today. Average California household income (without going stated) according to the latest as reported by the US Census Bureau is $49,894.
|
County
|
Per
Capita Income |
Median
Household Income |
|
Orange County
|
$25,826 |
$58,820 |
|
San Francisco
County |
$34,556 |
$55,221 |
|
Los Angeles
County |
$20,683 |
$42,189 |
|
Ventura County
|
$29,634 |
$75,157 |
|
San Bernardino
County |
$16,856 |
$42,066 |
|
San Diego County
|
$22,926 |
$47,067 |
|
Santa Barbara
County |
$23,059 |
$46,677 |
Mortgage How
Much Income Do I Need?
Results: Interest derived from Bankrate.com 5.85% on a 30-year fixed
|
Loan Amount: |
$450,000.00 |
|
Monthly Principal and
Interest: |
$2,654.73 |
|
Monthly Taxes and Insurance:
|
$516.67 |
|
Monthly Private Mortgage
Insurance (PMI): |
$195.00 |
|
Total Monthly Payment (PITI):
|
$3,366.40 |
|
Monthly Debt Allowed:
|
$961.84 |
|
Required Monthly Income to
Qualify |
$11,390.11 |
|
Required Annual Income to
Qualify |
$136,681.32 |
My problem is that many homes
were sold to homeowners under false pretense. Home buyers were convinced that "it" was “the
best time to buy”, home values were great, and interest rates were low. “Buy now and in a couple of years refi into
a 30 year fixed and you’ and your family will be set for life.” As you can see from the analysis above, many
of these folks would not have qualified then without the benefits of subprime
financing and would never qualify in the future based on their income
alone. They were set-up for failure and
we’re headed down the same path today unless we have tools that address the
core problem of affordability in California and match income up with the
payment required given the fact that we are moving towards a Wal-mart style
economy*.
I personally don't shop at Wal-mart! I don’t believe in supporting or patronizing that don’t have my intrinsic interest at heart to save a few pennies on this and that. I don’t believe in supporting or patronizing any firm that don’t show concern for my intrinsic interest or the interest of my profession at heart just to save a few pennies on this or that. Did you know that when Wal-mart moves a community in opportunities for realtors and lenders decrease as wages go down and self-employment in retail industries decrease? Did you know that self-employed persons buy bigger houses with more amenities than other buyers?
Declaring California a high cost state in this writer’s opinion is a first step in the right direction. Expanding loan terms is another step that will decrease the financial burden of homeownership, making it more affordable. Ignoring the problem of the day won’t make them go away or create any solutions; it is like using a band-aid for a wound that will later require stitches. And while we are doling out the goodies to make homeownership more assessable and affordable can we have a cup of integrity from Realtors and lenders in guiding homeowners with honest information and not cursory misinformation just to earn a commission.
* Jobs and employment with lower wages and which, requires the worker to bear a larger share of their health care expense.
Am I smoking some of that funny stuff or is this a picture
of California’s reality without reform?
