Vacation homes becoming more affordable?

It was back on December 26, 2005 that Realty Times reported rather sceptically on the growing affordability of homes in California. Some excerpts:

California Dreamin' by Blanche Evans

only 15 percent of Californians -- the ones who make $128,270 or more, can afford a median-priced home, priced at $543,980, as of November 2005

The housing market in California has seen double-digit increases for four years, which suggests to some that it's certainly booming and to others that it may be in a bubble.

To give you an idea of how popular it has become to live in California, in 1968 the median home cost $23,210. The median home in the U.S. cost $20,100.
Difference: 14.9 percent higher in CA than the US median

By 1999, the median California home was $217,510 while the median U.S. home was $133,300.
Difference: 63.2 percent higher

By 2004, the median California home had more than doubled to $450,990 while the U.S. median home had merely skyrocketed to $185,200.
Difference: 143.5 percent higher!

California has enough of a population that it spills into other states, especially when prices get out of reach for some homebuyers. Others want to cash in their housing chips and place their winnings in Las Vegas, Scottsdale, or other cities.

Leslie Appleton-Young, chief economist for the California Association of Realtors says that anecdotally speaking, one-third of relocating families going to Las Vegas are from California.

[California] is reporting double-digit appreciation of home prices for its 2006 forecast, yet, affordability in the state has hit new lows. If affordability is too low for most to be able to afford homes, why is California still booming?

Explains Broderick Perkins, ... first-time homebuyers usually drive any housing market, but the California market appears to defy gravity as first-time homebuyers dropped to below 30 percent of the market for the first time since 1979."

Higher prices forced first-timers to borrow 33 percent more money in their first mortgages than last year, or to take on a second mortgage actions which increased 36.4 in 2003 and 57.2 percent in 2004. Down payments dropped 27.6 percent to $18,450.

"What jumped out at me," says C.A.R.'s chief economist Leslie Appleton-Young, "was that the percentage of first-time buyers was low, 26 percent -- that's the lowest that number has ever been since 1979.

The last time affordability was so low, California housing lost value and took years to recover. According to Local Market Monitor, Los Angeles homes topped the market at $220,200 in 1990. By 1996, they were worth $176,300, a 20 percent loss, not counting what the houses would have been worth if they had kept pace with inflation. The homes would have lost more than 34 percent of their value, according to CNN journalist Les Christie's calculations.

However, prices in Los Angeles and across the state rebounded exponentially following the bust and as much as 103 percent in the last five years.

Appleton-Young agrees these figures look like a perfect real estate storm brewing, and what she calls the "substitution effect" as buyers look to buy where they can afford, even if that's inland or out of state.

Did affordability issues cause the housing bust in the '90s, and is it about to happen again? No, says Appleton-Young.

"The market peaked in 1989 and then for several years, it didn't plummet, but got relocated inland," she says. "Then we went into strengths in different areas, and then we had a recession. For six years, there was a decline in some areas, but some areas declined as little as five percent. I don't think housing will create a recessionary environment."

Fast Forward ....

Bloomberg reports,

U.S. Foreclosures Rise 65 Percent as Vacated Homes Add to Glut By Dan Levy

U.S. foreclosure filings climbed 65 percent and bank seizures more than doubled in April from a year earlier as rates on adjustable mortgages increased and vacated [the new vacation homes?] homes added to a glut of unsold homes, RealtyTrac Inc. said.

More than 243,300 properties, or one in every 519 households, were in some stage of foreclosure, the highest monthly total since RealtyTrac, a seller of default data, began statistics in January 2005. Nevada, California and Florida had the highest rates. Filings rose 4 percent from March.

Median prices for a single-family home fell 7.7 percent in the first quarter, the biggest drop in 29 years, the National Association of Realtors reported yesterday.

Banks will seize about 60,000 properties a month through December, when about 1 million U.S. homes, or a quarter of all homes for sale, may be bank-owned, Rick Sharga, RealtyTrac's executive vice president of marketing, said in an interview.

Nevada had the highest U.S. foreclosure rate for the 16th consecutive month. One of every 146 households was in some stage of foreclosure....

California had the second-highest rate, one for every 204 households, and the most filings for the 16th consecutive month at 64,683.

Arizona had the third-highest rate, one for every 224 households. Filings almost tripled from a year earlier to 11,620.

Florida had the second most filings at 35,264 and the fourth- highest rate, one for every 242 households. Foreclosures increased 146 percent from a year earlier and rose almost 17 percent from March.

A squidge of the population statistics shows roughly one out of every five Americans lives in one of those 4 states.

Guambat reckons that, what with all those vacating/vacation homes, affordability rates will soon be coming back down. And so will demand from those folks holding stronger currencies than the Greenback. Sort of like back in the oil crunch days of the late '70's when the fear was that Arabs were going to be buying up all the homes in Hollywood, paying with cash.