Thomas Elias: The crisis for first-time home buyers
No one doubts there’s a crisis in California housing. State lawmakers took plenty of actions this summer, getting set to pass a batch of bills that Gov. Gavin Newsom will gladly sign into law.
These will temporarily suspend the right of cities and counties to make new building standards, raise fees on low-income housing construction or impose moratoria on new housing. They will streamline the approval process for housing developments where income of buyers or renters is limited to 120 percent of the area’s median income. And other tactics aimed at making housing available to those with lower middle-class incomes.
But no one appears to be looking out for first-time homebuyers, mostly hopeful young adults who often save for years toward the usual 15 percent to 20 percent down payment on a house or condominium.
Those folks face a real crisis. A new study from the international real estate service firm Point2 Homes notes that the share of first-time buyers in the total sales nationally and in California dropped from 50 percent in 2010 to 33 percent in 2018, and even lower this year, which is not yet complete.
At the same time, the median price (half of all homes are above this level, half below) of an entry-level home has risen faster than home prices in the move-up buyer segment, people getting their second or third homes. First-time buyers pay 31 percent more today nationally than 10 years ago, the study showed, but far more in California.
Meanwhile, repeat buyers pay only about 28 percent more on average than in 2010.
Part of this comes because home prices were depressed during the mortgage crisis that helped fuel the Great Recession of 2008-11. But most of it is due to the continuing upward swing of almost all home prices, most notably in California.
This is true even now that prices appear to be leveling off in some parts of the state. Home prices increased by 35 percent nationally in the years since the crash, but in parts of California, the rise was much steeper.
In San Diego, for one example, the average home price rose by 101 percent, more than doubling. San Francisco was only slightly behind, with a 100 percent rise from a median price of $638,661 in 2009 to $1.274 million last year. Never before has California seen such large increases.
The huge problem this creates for youthful prospective first-time homebuyers is unprecedented and constitutes a crisis state government must address. If California doesn’t take care of its young adults, many of whom are also young parents, many of those people will go elsewhere, a trend that has already begun. These same folks often make up the most educated portion of the state’s workforce, so businesses will follow to wherever they move in large numbers.
Yes, this might ease the traffic gridlock afflicting many urban areas of California, but it can also lead to recession. If they go, they will lessen demand for new housing, costing thousands of construction jobs and lowering the state’s tax receipts just as it has taken on new responsibilities like providing Medi-Cal health insurance to many more residents.
It could also lower the equity now held by millions of homeowners, for whom their living quarters represent by far their largest assets.
So what’s California to do? The state could begin by dedicating some of its current $21 billion budget surplus to helping young homebuyers whose purchasing power has dropped precipitously through no fault of their own. One way to start could be a low-interest loan fund for first-time buyers amounting to several billion dollars that could enable this vital group to get onto the housing merry-go-round that has so frustrated them.
If California had what could amount to its own version of Fannie Mae, the Federal National Mortgage Assn., it could stem the flow of educated young persons to other states and make its economy almost recession-proof.
But so far, Newsom and the Legislature appear focused on Band-Aids rather than the needed radical surgery. As it stands, they brag about increasing housing, but ignore a major chunk of the problem.
Email Thomas Elias at firstname.lastname@example.org. His book, “The Burzynski Breakthrough: The Most Promising Cancer Treatment and the Government’s Campaign to Squelch It,” is now available in a soft cover fourth edition. For more Elias columns, go to http://www.californiafocus.net.
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