Rising Home Prices Keep Lower Income Families Out of Market

Rapidly increasing prices may thrill those who already own a place, but they have crushed the hopes of many seeking entry into the middle class.

Three decades ago, a California family earning about a quarter of the median income could afford a median-priced home. But today, a family would need to earn more than [4 times] the median income to afford the same home.

With nearly three-quarters of California families unable to buy a median-priced first home, those trying to get into the market must make enormous sacrifices — in their choice of neighborhood, the quality of their home and the budgets they have to live on.

This distortion of the housing market in California, particularly in Southern California and the Bay Area, runs counter to half a century of social policy aimed at broadening the middle class and threatens to further polarize a region already characterized by extremes of wealth and poverty.

The federal government poured more than $20 billion into the housing industry in the years after World War II, helping propel home ownership nationwide to 68% today. California lags, with only 58% of households owning their home — the fourth-lowest rate in the nation, according to the U.S. census. Moving west is no longer moving up if housing is the measure.

That reality is starkest at the bottom of the housing market, where prices have outrun programs designed to help people get a start.

Over the past year, the Los Angeles city Housing Department has seen a 50% drop in clients who, like Ada King, sought interest-free "soft second" mortgages of $60,000 to $75,000, said Bobken Simonians, director of the department's home ownership division. Simonians thinks he knows why: The bottom of the market in Los Angeles has risen beyond the reach of federal aid formulas.

"As prices increase, our subsidy is not enough," Simonians said.

Under federal rules, a family can qualify for a subsidized loan if their income falls below 80% of the median family income for the area in which they live. In Los Angeles, that comes out to about $47,000, Simonians said.

"At that income level, the first mortgage a family can afford is about $120,000," Simonians said. "Our $60,000 for purchase assistance brings it to $180,000. At that price, you cannot find many houses in Los Angeles and, if they are available, they are not in areas people like."

There are only five ZIP codes within Los Angeles with median prices below $200,000, all of them in or adjacent to Watts. And all have experienced price increases of more than 25% in the past year, according to DataQuick Information Systems in La Jolla.

(emphasis added)