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US housing boom gone, but prices still out of reach in California

(Page 2 of 2)

In San Diego, one result is that new construction is increasingly dominated by condominiums and multifamily units, not the traditional single-family home. Those are what buyers can afford, and what zoning rules call for in a region of smog and sparse water supplies.

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"The day of the ... house with the white picket fence, for at least this part of the state, is really over," says Robert Pinnegar, executive director of the San Diego County Apartment Association, a rental trade group.

Land here is limited in all directions: by the Mexican border to the south, the ocean to the west, the Marine base at Camp Pendleton to the north, and the Cleveland National Forest east of the city. In turn, high land prices make it hard for builders to finance affordable developments.

Townhouses here can cost $400,000 or more.

A low ownership rate

Such prices explain why just 57 percent of California households own homes – far below the national average of about 69 percent.

Those prices also explain why a growing share of San Diego workers now live outside the county, in some cases commuting more than 50 miles or living across the Mexican border.

"It's kind of impossible to stop" that migration, says Susan Baldwin, a senior regional planner at the San Diego Association of Governments.

But she and other local officials have been trying to craft solutions.

A new light-rail route, for example, will link the city of Oceanside, to the north of San Diego, with Escondido and other nearby communities. Stops along the route are candidates for new high-density housing, she says.

Nonprofit organizations are also stepping into the breach.

Wakeland Housing recently opened Lillian Place, a 74-unit development near San Diego's downtown baseball stadium, with rents about half the typical rates. Partnering with local governments and others, the company has helped create 6,000 units of affordable housing around the state.

A spreading affordability crisis

But that barely begins to address the need.

"We used to think of affordable housing as something that was for extremely poor people. [It] is now something that seems to be sneaking closer and closer to the middle class," says Ken Sauder, Wakeland Housing's president. "Our kids can't afford to live here."

For now, if fewer Californians can afford to buy, it's also the case that many homeowners have decided not to sell in the current market.

"The market is kind of pulling back to [only] people who are really motivated" to sell, says Peter Dennehy, senior vice president of Sullivan Group Real Estate Advisors in San Diego.

That's a recipe for a slower pace of sales, but not necessarily lower prices, he says.

The state has seen down markets in the past, however.

In the early 1990s, the end of the cold war hammered southern California's aerospace industry. Home prices in Los Angeles took six years to bottom out, 27 percent below their 1990 peak.

In the past year, there hasn't been a similar shock to the economy. No one is forecasting a repeat of L.A.'s 1990s experience.

But several uncertainties stand out, that could have wider ripple effects in the state's economy: Will a rise in foreclosures prompt banks to curb the flow of credit to buyers? Will large numbers of jobs in construction and other real estate activities be lost? Will consumer spending be affected by a cooler housing market?

These are all real risks.

It's not a time for homeowners to panic. Any price declines are unlikely to wipe out their gains of recent years.

But the affordability squeeze, says Ms. Chen, "leaves the market very exposed."