Affordability Challenges

Affordability Challenges By: Verta Guynes Managing Real Estate Broker;  CalBRE#: 01448840 

Housing affordability can differ from age group to age group across the country.  Potential homebuyers 30 years and under are the ones that face the biggest challenge in the current housing affordability arena.  Based on information from the C.A.R. 2014 Annual Housing Market Survey, this group of consumers have a lower income per house, versus other age groups, but they also put a smaller downpayment when buying their first home.   As a result, they are seen as the cluster that is the least qualified to buy a median –priced home.  Many young homeowners also seem to buy homes in the lower-priced segment, which is also the market with the tightest housing supply and the most competitive. 

Not surprisingly, this is also the age group with the most first-time buyers.Unfortunately, first-time homebuyers are seen as the hardest hit by rising home prices and unpredictable rising interest rates.  In 2014, the California first-time homebuyers was 30.5 percent, a notable decline by 20 percentage points from the 50.8 percent peak of first-time homebuyer market share in 1995.  Although it inched up slightly from 28.1 percent in 2013, it still remained far below the long run average of 38 percent and was the lowest in the last seven years.  The small level of first-time homebuyers raises concern because it denotes a constrained flow of new households into the housing market. Without a stable flow of new households into homeownership, the trade-up market can't be replenished properly in the long run. This happened in the late 1980s, when low affordability curbed first-time homeownership, which in the early 1990s worsened the decline of the trade-up market in California.

Although home prices have increased at a double-digit rate in the last few years, prospective first-time buyers did not have the advantage of accrued home equity. Reportedly younger households have not yet amassed enough savings for the significant down payments and first time home owners have not reached their full earnings potential yet. As a result, they are facing  both down payment and income challenges.  Bridging the conversation with family members for loans and gifts to contribute toward down payment assistance is also an option.