Wednesday, Nov. 19, 2008

Home prices a first-time buyer's dream

Great news: Home prices have fallen!

At least that's great news for people buying homes. New statistics show home affordability has soared in the Northern San Joaquin Valley as plummeting prices enable more families to attain the American dream.

Stanislaus, Merced and San Joaquin counties now have some of the most affordable homes in California, even considering the region's relatively low income levels.

The National Association of Home Builders/Wells Fargo Housing Opportunity Index calculates that nearly 60 percent of homes sold in the region during July, August and September were affordable to local median-income families.

That's a dramatic change from three years ago, when valley residents were almost priced out of the housing market.

In Stanislaus, for instance, median-income families could afford barely 3 percent of the houses sold three years ago. But this fall, 59.7 percent of the homes sold were affordable. So Stanislaus has gone from one of the least affordable housing markets in the nation to having above-average affordability rates.

Merced is doing even better, with 60.7 percent of homes affordable to median-income families. That's the highest percentage in Cali- fornia. Three years ago, by contrast, only 2.5 percent of homes were affordable, which was the nearly the worst in the United States.

San Joaquin also has made great strides, as 58.1 percent of homes now are affordable compared with 4.6 percent three years ago.

In California, 44 percent of homes are affordable. In the United States, 56.1 percent are affordable.

The flip side of affordabil- ity, unfortunately, is that home values have crashed, wiping out many homeowners' equity.

Boom for first-time buyers

Foreclosures have run rampant throughout the Northern San Joaquin Valley, and banks have drastically slashed prices on repossessed homes just to unload them.

That's pulled down the entire housing market, so homes now are selling for less than half of what they were three years ago.

Back to the good news: First-time home buyers are jumping into the market and buying bargain-priced property.

"About 90 percent of the loans we do in our office are for first-time home buyers," said Kim Arivett, owner of Residential Pacific Mortgage and president of the Mortgage Lenders Association of Stanislaus County.

"The buyers are just absolutely thrilled to get their house keys," Arivett said. "It's heartwarming for our staff because we know they really can afford these homes."

The vast majority of first-time buyers get their mortgages through the Federal Housing Administration, which Arivett said offers fixed-rate 30-year loans with 6 percent to 6.5 percent interest rates. Arivett said FHA loans are readily available to those who can verify sufficient incomes.

The housing opportunity index bases affordability on what people in each com- munity earn compared with what homes cost. It assumes a family can afford to spend 28 percent of its gross income on housing, including mortgage costs, property taxes and insurance.

The affordability index, however, is only as good as the data it's based on, and some question whether the income statistics used are current. The index, for instance, calculates that the median- income Stanislaus family earns $56,500 per year.

But many workers in the region have lost jobs this year, and unemployment is rising.

"Income numbers often lag," cautioned Dr. Stephen Endsley, a Modesto real estate investor. "It may look like we have housing affordability, but do we really consider unemployment? First-time buyers have to have confidence before they go out and buy, but many of them have questions about (the stability of) their employment."

Endsley said nearly 11 percent of Stanislaus' workers are officially out of work, and he estimated an additional 4 percent are underemployed and another 4 percent have become discouraged and dropped out of the job market.

But home prices have fallen so low, Endsley said, that "speculative investors have come heavily back into the market."

Fewer homes on market

Whether it's investors or first-time buyers, low prices have inspired many people to buy. Stanislaus home sales this September were 178 percent higher than during September 2007.

About 25 percent fewer homes are on the market now than a year ago. That's partly because new construction has dramatically declined and the number of homes being foreclosed on by lenders has started shrinking.

As low-priced houses enable more people to buy, the region may be able to more quickly whittle down its inventory of vacant foreclosure homes, said Kelvin Jasek-Rysdahl, an economics professor and co-director of the Center for Public Policy Studies at California State University, Stanislaus.

Bee staff writer J.N. Sbranti can be reached at jnsbranti@modbee.com or 578-2196.