Think The California Market Will Stabilize

(As the U.S. housing market has been in headlines all over the country and not just in the real estate section, the main focus has been on California.)

The state that has all the money and breathtaking mansions seems to lead the national market whether it is booming or fading.

Fading is an understatement if you used that term to describe the current U.S. and California housing market, but there have been recent reports that suggest 2007 will bring in new light.

These forecasts are often contradicted the same or very next day by a different industry corporation, but consumers are gaining slight confidence in the immediate strength of the housing market’s future. But Broderick Perkins explains in his November 30, 2006 article, “Why California's Housing Market Is Out of Sync” printed in Realty Times that these optimistic forecasts may be ill-conceived and are only hurting the consumer’s judgment.

For the most part, home buyers, especially first-timers, do not worry too much about how high home prices escalate (they blame inflation) until it begins to affect the bottom line, which is their ability to comfortably make the monthly mortgage payment.

When this occurs, it often relates to the market being deemed unaffordable. And while optimistic forecasts put sugary ideas of market stability into the heads of home owners and sellers, the grim reality may be that there are factors that have been ignored for far to long for this to happen.

“Interest rates have fallen and are actually lower today than they were five to six years ago when the boom began. Unfortunately, they aren't nearly low enough to compensate for the lackluster growth in incomes and home price boom.”

In fact, the California Association of Realtors (CAR) reported that only 24 percent of first-time home buyers could actually afford the median-priced home in the third quarter of 2006.

“The average fixed rate of interest on conforming loans has declined more than 18 percent from 7.8 percent in October of 2000 to 6.4 percent in October of 2006, according to Freddie Mac, but California's median price of homes at $252,510 in October 2000, has soared nearly 117 percent to $548,680 in October this year, according to the California Association of Realtors.”

This is astounding and very depressing considering that during that same period, according to the U.S. Census, the California median household income has only increased about 8.0 percent.

“That makes California's 28.7 decrease in home sales in October [2006] not unexpected.”

Many headlines that have lead to optimistic forecasts have been supported by the fact that prices have been falling slightly, which will support a buyer’s market. But according to the California Building Industry Association, housing affordability has fallen even further in 14 of the 28 metro markets surveyed.

“For all buyers, California's housing affordability remains the lowest in the nation, according to the (CBIA), which says the shortage of housing also contributes to higher prices.”

“‘While it appears that home sales have stabilized over the past three months, it’s too soon to say whether or not the market has bottomed out,’ said CAR president Colleen Badagliacco of San Jose.”

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