Home affordability in region is worst in state

Only 16 percent of county's residents can buy the median-priced house

By Roger M. Showley 
STAFF WRITER

December 12, 2003

For the first time, San Diego County's skyrocketing housing market has made the region the least affordable of the state's major metropolitan areas – worse than the San Francisco Bay Area, Silicon Valley and Orange County, the California Association of Realtors reported yesterday.

In October, only 16 percent of San Diego County households could afford to buy a median-priced, resale, single-family home, pegged at a record price of $449,340, the association found.

The annual income typically required by lenders to buy such a home was $105,313, according to the association, almost double the median county household income of $55,000.

In computing its monthly affordability index comparing regions of the state, the association charted a theoretical purchase of a median-priced home in each area.

Assuming a 20 percent down payment and a 30-year, fixed-rate mortgage, it then added in taxes and insurance to arrive at a monthly payment. Annual incomes required by lenders for the purchase then were determined and compared with regional income data.

Although the October monthly affordability index was a record low for the area, some analysts predicted an even bleaker future for those trying to find a house.

"It's becoming more than just a crisis for families," said San Diego housing advocate Jeremy Kaercher. "It's becoming a catastrophe."

"These are dismal statistics," said Paul Tryon, executive vice president of the San Diego Building Industry Association. "They point to the crisis that many in the industry and others have recognized for a long time. It's sad that it's had to reach these acute levels before we're willing to take action."

And the worst is yet to come, said Robert Kleinhenz, the realty association's deputy chief economist.

"The fact of the matter is we're looking at a situation going forward where home prices will probably continue to rise on the strength of improved economic conditions," Kleinhenz said.

In that scenario, he said that San Diego's affordability level could sink to a stunning 9 percent if mortgage interest rates rise as expected next year from the present 5.8 percent to about 7 percent, and if local incomes grow only marginally.

That would be coupled with a continuation of a phenomenal overall rise in local housing prices, he said, which could mirror the most recent annual gain of 18.8 percent.

In contrast with the San Diego region, the U.S. affordability index – the percent of the nation's households that could afford the median-priced house – was 57 in October. California's statewide figure was 25.

Although median prices of resale homes were higher in the San Francisco Bay Area, Santa Clara (Silicon Valley), Ventura, Monterey and Orange County, higher incomes in those regions made housing there more affordable than here, the realty association's economists found.

The association also reported that Contra Costa and San Francisco counties had lower affordability rates than San Diego County. But the San Diego area's relatively low incomes and high prices relegated it to the bottom of the state list, tied with the northern wine country region, which includes Napa.

What do San Diego buyers get for the median home price of $449,000 and change?

Coldwell Banker real estate agent Michen Denney found a home listed on Bacon Street in Ocean Beach that is 598 square feet on a 1,751-square-foot lot with a back yard barely large enough to park a Mini Cooper. It might need foundation work, but it's two blocks from the beach. Asking price: $445,000.

"I'm sad. I'm very sad," Denney said.

However, determined local buyers seem to find a way. One of Denney's clients, a disabled elderly widow in Scripps Ranch, had two offers on a Santee condominium listed at $255,000, and chose to sell to a single mother rather than to an investor.

That buyer is 44-year-old Jerri Horning. She and her 17-year-old son, Brandon, hope to close escrow on Wednesday and celebrate Christmas in a home of their own.

Brandon, who will graduate from high school in the spring and begin college, plans to increase his hours working at a coffee shop to help pay the $1,800 mortgage, which will represent about 50 percent of his mother's take-home pay.

"It'll be a struggle," Jerri Horning said, "but it'll be ours."

The latest affordability figures represent a stunning reversal for the region from a decade ago.

In November 1993, the area's affordability index stood at a modern record high of 44 percent, and the median-priced house cost $174,040.

But that was in the middle of San Diego's worst recession in 60 years, an era of defense-industry layoffs, bankrupt savings and loans, relatively high interest rates and a glut of new houses that could not be sold.

Marney Cox, chief economist at the San Diego Association of Governments, said it is possible to achieve a healthy economy and affordable housing at the same time.

"I'm not saying we can lower home prices from where they are today," Cox said. "Unfortunately, we're stuck with those – unless we have a substantial depression locally with significant high rates of unemployment and people leaving the region, and we're not going to see that."

Rather, he said, if San Diego can continue to produce high-paying, high-tech jobs and increase housing production from its present 15,000 homes a year to about 20,000, the price-appreciation pressures would lessen and people would eventually be able to afford to live here. Slowing population growth also would help, he added.

Along with high prices, the supply of existing homes for sale in most parts of the county is extremely low.

Teri Hill of Hill & Hill Realty in Del Cerro said that only six homes were for sale earlier this week in the 92119 ZIP code area, which includes the San Carlos neighborhood. In Tierrasanta, she counted seven houses on the market.

"Do you know how unbelievable that is?" Hill said. "There's just nothing there. In 17 years of selling real estate, I've not seen anything like it."

Roger M. Showley: (619) 293-1286; roger.showley@uniontrib.com

Home editor Carl Larsen contributed to this report.

Copyright 2003 Union-Tribune Publishing Co.