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Tuesday, Mar 19, 2024
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Tight Supply Still Big Factor in Housing Market

San Diego’s housing market was in a full-scale recovery mode last year, with the median price for November increasing by 16 percent year-over-year to $415,000, tailing off from the 20 percent median appreciation as of August, according to the latest report from DataQuick, the San Diego-based real estate research firm.

And while most housing experts say that rate of increase won’t be replicated this year, buying a median-priced house in San Diego will remain out of most local residents’ reach due to a variety of factors.

“It’s going to be an adjustment period in 2014, and I expect single-digit increases for most of the county,” said Nathan Moeder, principal at The London Group, a local real estate advisory firm.

While the price appreciation is good for owners and sellers, it made things more difficult for potential buyers, Moeder said.

“We have too many want-to-be buyers and not enough sellers, and there are more multiple bids on properties,” he said.

The lack of supply that helped push up prices last year should continue this year, Moeder said. With rising prices, more homeowners will escape negative equity — having a mortgage balance greater than a home’s market value — and that should boost for-sale inventories, he said.

Stan Humphries, an economist with real estate database Zillow, said in a presentation last month that rising mortgage rates will likely boost the average mortgage rate from about 4.5 percent to 5 percent by the end of this year, which could further constrain sales. The biggest reason for the increase was the Federal Reserve Bank’s announced plan to taper its $85 billion monthly purchase of federal securities starting this month.

But the Fed also signaled it wants to unwind its stimulus program gradually and was planning to maintain its near zero benchmark Fed funds rate even if the national unemployment rate drops to 6.5 percent.

New Regulations

Tougher federal regulations taking effect this month cover specific aspects of the mortgage granting process. The rules for a “qualified mortgage” — part of the broad banking reform package known as Dodd-Frank — are aimed at correcting the easy-money environment that led to the financial crisis of 2008.

Among some of the regulations are limiting a borrower’s debt-to-income ratio to 43 percent; capping points and fees on the loan at 3 percent; and banning the option for borrowers to pay interest only on their monthly payments.

Most mortgage industry experts said the new rules won’t have a huge impact on mortgage originations.

John Frazza, regional sales executive for Bank of America, said his bank has already implemented the regulations, which provide legal protection to lenders in case borrowers file a lawsuit.

Regarding tighter mortgage underwriting by lenders, Moeder said he understands the reaction — preventing a reoccurrence of the massive defaults that helped cause the recession. Still, he describes the current situation as overly restrictive.

Lenders should provide credit to people who are self-employed or have earnings that aren’t documented as neatly as a regular paycheck, he said.

“At some point, that type of lending will come back,” he said.

Despite these restrictions, Frazza said that “owning a home is more affordable today than it was in the last 26 years.”

That contention doesn’t hold up for San Diego, according to a recent report from the National Association of Home Builders that ranked the area the eighth-least-affordable housing market in the nation. The report found that only 37 percent of San Diego’s population could afford a median-priced home — $400,000 at midyear — based on the median household family income of $72,300.

Kelly Cunningham, an economist with the National University System Institute for Policy Research, said the unaffordability for a majority of residents is shared by 12 other cities in California. The most unaffordable market is San Francisco, where about 19 percent of residents can afford that city’s median-priced house of $781,000, based on the city’s annual median household income of $101,200.

High Prices, Low Wages

The trend points to less affordability in San Diego as prices continue to increase, while the county’s median income has been falling in recent years. It dropped 4.7 percent last year from 2012, said Cunningham, citing data from the Department of Housing and Urban Development.

The main reason behind this state’s high-priced housing is strict growth controls and restrictive land-use rules builders must contend with, he said.

A solution to creating a more affordable market, Moeder at The London Group said, is building more housing units. The area should be generating more than twice the number of new units than the average of 5,000 in the past several years.

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