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.
from the March 12, 2007 edition
Page 4 of 4
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."
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