US housing boom gone, but prices still out of reach in California
The current slump in the housing market has done little to make Californian cities affordable.
By Mark Trumbull | Staff writer of The Christian Science Monitorfrom the March 12, 2007 edition
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SAN DIEGO - The beige stucco townhouses and palm-lined cul-de-sacs of San Diego County exude a quiet tranquility, but that demeanor hides a difficult reality: Even after a sharp housing slowdown, cities in California are still America's least affordable places to live.
This means that California, which helped lead a nationwide real estate boom, could face more downward pressure on home prices.
Statewide, just 25 percent of households can afford an entry-level home, according to an index released this month by the California Association of Realtors. That's far below the national average of 61 percent who can afford to purchase a home.
Forecasters don't expect an outright plunge in California prices. With those palm trees and the Pacific Ocean beckoning, the Golden State appears sure to retain gilt-edged home values.
But if there's a floor under home prices in the nation's most populous state, there is also a ceiling.
"Home prices have gotten out of balance with incomes," says Mark Milner, a real estate analyst at PMI Mortgage Insurance in Walnut Creek, Calif. "Over time, those have to come back in balance."
The figures are eyepopping. First-time homebuyers paid a median price of $477,400 in California last year – 2-1/2 times the US median, according to the California Association of Realtors. The median entry-level condo in California sold for $360,160.
What happens here will be important, not just because California is home to nearly 1 in 8 Americans. It will help set the tone for the nation's housing market in the next year or two.
Moreover, the state's struggle over affordability represents, in extreme form, a national trend. Across the US, rents and home prices have risen faster than incomes over the past seven years.
In many large cities from Washington to Dallas, home prices have jumped in remote exurbs by nearly the same percentage as in the inner suburbs. For many buyers, a long commute is no longer a ticket to an affordable home.
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