The number of buyers who could afford a median-priced home in Southern California continued to shrink throughout 2004, widening the gulf between housing haves and have-nots.
"The bottom line is unless you have a chunk of change saved up or someone that can lend you money, it's tough," said Lorri Hamilton, 40, a Brea hairdresser who has been looking since August to buy in Orange County.
By one measure, California is home to the 11 least-affordable housing markets in the nation, and Southern California counties top the list. The National Assn. of Home Builders/Wells Fargo Housing Opportunity Index found the least affordable county nationwide in the third quarter of 2004 -- the latest period for which data are available -- to be Santa Barbara, followed by San Diego, Monterey, Los Angeles and Orange counties.
The percentage of households in Los Angeles County able to afford a median-priced home of $474,570 was 17% in November, down from 23% a year ago when the median was $382,190, according to the latest figures reported by the California Assn. of Realtors. The Orange County median for November was $633,340, with only 13% of households able to afford a residence, down from 18% a year ago. During the same one-year period, dramatic declines were posted in Riverside, San Bernardino and Ventura counties.
"With a $450,000 median home price," said Leslie Appleton-Young, chief economist with the California Assn. of Realtors, "if you can save 20%, do the math. How many first-time buyers have access to that kind of money?"
Not only does a buyer need a hefty sum for a down payment, L.A. County buyers needed an income of $109,971 to qualify for a 30-year fixed-rate loan with 20% down on a median-priced home in November. In Orange County, the annual income needed was $146,763.
Although a limited number of special programs help teachers and other public employees, most first-time buyers are on their own. Some have used gifts from family members to bridge the gaps, while others have turned to creative financing options, including 0% down, interest-only and adjustable-rate loans. Some real estate agents are even picking up the slack.
K.J. Koljonen, with Prudential California Realty in San Diego, went beyond the call of duty for clients Rodney, who is an accountant, and Sadie Mutter, a Pilates instructor, when their deal on a $215,000, 700-square-foot condo near San Diego fell through 10 days into escrow.
The couple, both 29, appeared to be picture-perfect first-time buyers. Their annual combined income was more than $75,000 a year and they had a baby on the way. But they were still paying off $70,000 in school loans, and that debt became a deal breaker.
"Without help from family," said Rodney, who spent six years in the Marine Corps after graduating from the University of San Diego, "realistically, the average person cannot put themselves through school, try to buy a house and have everything come out OK."
The pair did get some help to pay down debt from their parents, but it wasn't enough. What they needed was a break -- and they got it from Koljonen.
When the deal fell through, Koljonen bought the condo and came up with a plan for the Mutters to eventually buy the unit back through a lease with an option to purchase. Although Koljonen bailed out the couple, she benefited too.
The Realtor had lost a property in the San Diego area during the fires of the fall of 2003 and was looking for a replacement investment.
"She helped us and we helped her," Rodney said of the business arrangement.
The Mutters pay Koljonen $995 a month. While the couple work on paying down their school loan debt, Rodney will remodel the condo's kitchen and bathroom -- an estimated $20,000 in labor costs that Koljonen will later accept as a down payment should they want to buy the unit. Otherwise, Koljonen will just pay Mutter for his work.
Her actions may not be commonplace, but as affordability declines, other agents are reaching out to strapped buyers in many ways.
At the state level, the California Assn. of Realtors has raised $2.33 million since the establishment of its Housing Affordability Fund in January 2003. The fund can be tapped by local Realtor associations to help potential buyers with down payments, build homes through Habitat for Humanity or match grants through employer-assisted housing programs. The association's goal is to help make homeownership a reality for more buyers and increase the housing stock by funding housing developments on land held in trust by nonprofits.
Koljonen, who serves as the chairwoman of the San Diego Assn. of Realtors Housing Opportunities Committee formed in 2003 to help come up with ways to bridge the affordability gap, said the group is encouraging companies to find ways to make homeownership easier for employees.
Matched savings programs are being discussed, as are employer-provided gifts and grants to assist employees with down payments and closing costs.