In Southern California, the gap between household income and the income necessary to qualify for a loan rose 21.4 percent from a year ago.

By Muhammed El-Hasan
Daily Breeze

A typical California household wanting to buy a median-priced home in the state in the second quarter fell $70,480 short of the annual income necessary to qualify for the needed bank loan, according to a report issued Tuesday by the Los Angeles-based California Association of Realtors.

The gap between median household income and qualifying income for a loan increased by 28.3 percent compared with the same quarter last year, CAR said. This comes as the state’s red-hot housing market maintains double-digit gains.

The median California household income is $53,840 a year, less than half the $124,320 income needed to qualify to purchase a median-priced home at $530,430.

This assumes that a household has a 20 percent down payment and plans to spend no more than 30 percent of its income on the house, CAR said. The median price refers to the figure from which half of homes sold for more and half sold for less.

“Mainly, this has implications for first-time home buyers because most existing home buyers looking to buy a home will have equity in a home and will be able to put down more,” said Raphael Bostic, an economist at USC’s Lusk Center for Real Estate.

In Southern California, the income gap for buying a home was $67,220 in the second quarter, up 21.4 percent from a year earlier.

Affordability is an issue among prospective home buyers in the entire Los Angeles area, said Cynthia Nyquist, district director for the Los Angeles and beach cities market at Zip Realty near LAX.

“In the South Bay specifically, folks who would love to live in Manhattan Beach or Redondo Beach are actually moving farther south to areas like Long Beach,” Nyquist said. “I think when you have a situation where every single area is increasing (in price), the lower-rent areas become areas where your up-and-coming folks are buying and renovating.”

The income gap grew even as the sales figures stayed at historical highs, said Robert Kleinhenz, CAR’s deputy chief economist. Year-to-date home sales are 3.6 percent ahead of last year’s pace, Kleinhenz said.

“In order to have these sales, households are having to spend much more than (30 percent of annual income),” Kleinhenz said. “It has to be a concern for everybody tracking the housing market that households are increasingly having to stretch themselves financially to buy their home.”

In a broader economic sense, this poses a problem because these home buyers have less money to spend elsewhere, Kleinhenz said.

The San Francisco Bay Area had the highest income gap for home affordability. That gap of $102,230, was nearly triple the gap in the Central Valley, which was $39,450.

Although some economists believe that a housing bubble is forming in the state, CAR’s Kleinhenz doubted the bubble theory.

Bubbles usually form because of a significant increase in speculative buying, Kleinhenz said. While speculators have increased their home buying in California, it’s not significant enough to form a bubble, he said.

Instead, housing prices are being pushed up by a lack of sufficient housing supply, he said.

“If there was a serious economic downturn and losses of jobs like in the early ’90s, then you’re looking at a situation that would lead to a serious drop in housing prices,” Kleinhenz said.

But he doesn’t expect that to happen.