MICHELE NORRIS
California has long been one of the priciest real estate markets in the country, but in recent years home prices in Los Angeles have reached manic levels. The median home price in LA County is $478,000. Housing experts predict it'll hit the half-million mark within the next year. Home prices have jumped 118 percent in the past three years and on top of that the demand for starter homes far outstrips the supply.
Dr. JULIE PARK (Home Buyer): It is just overwhelming. We've been monitoring the market for the past three years so we know how it's going. It's going up.
Unidentified Man #1: Up, up, up. We went crazy. I mean, in less than two weeks we went to about 75 houses.
Unidentified Man #2: When you pass by a house that has a for-sale sign, there's usually about 20 cars parked.
Dr. PARK: And a lot of people come in cash, and every time I would put an offer on a house I'd always lose out.
NORRIS: That's Julie Park. She's a 33-year-old Korean immigrant with a PhD in sociology. She works as a research assistant at the University of Southern California. We visited Park as she was checking on the painters working on her new town home in Carson, just south of Los Angeles.
Dr. PARK: The color came out great. I still can't believe this is mine.
NORRIS: Not long ago, buying a home would have been a breeze for someone like Julie Park. She has a strong credit rating and a well-paying job. But in today's market, that's not enough. As home prices have risen, so do the 5 to 10 percent down payments, not to mention the monthly mortgage payments after buyers move in. Housing experts say these conditions breed a combination of creativity and desperation. Buyers are increasingly taking unconventional steps, combining resources from multiple families, including the part-time income from a teen-age son or daughter, to qualify or taking out a high-risk mortgage. That's how Julie Park bought her town home. She put no money down and used an interest-only loan. Such loans allow buyers to pay only interest for an initial period, say five years, but after that the buyer must pay the principal and the interest, and here's where the risk comes in. Because payments on the principal were temporarily delayed, the new payments are much higher than they would have been.
Dr. PARK: It's scary. Now I'm thinking, wow, I have this huge home and I've literally put nothing into attaining it except for the closing costs. I should be able to grow into the loan fairly nicely unless something goes really bad in the economy. Then I'll be really stuck, but I'll be stuck with a lot of other people.
NORRIS: Park does have plenty of company. More than half of the state's home buyers have adopted that `buy now, pay later' strategy. And what's remarkable is that just five years ago interest-only loans accounted for merely 5 percent of the mortgage market. Across the country there's a robust debate about the overheated US housing market and when and how the housing bubble might burst. But such talk is rare in Los Angeles, says Gary Painter. He's with the Lusk Center for Real Estate Development at the University of Southern California.
Mr. GARY PAINTER (Lusk Center for Real Estate Development): Right now I just don't see that, simply because there's not a lot of housing on the market. And in a market where there's very little housing inventory out there, people looking to sell, and there's at least as many buyers, you're not going to see house prices fall.
NORRIS: That means more work for organizations like the Montebello Housing and Development Corporation just east of Los Angeles. The program provides a bridge to the housing market for families that earn less than $48,000 a year. For renters who are eager to become homeowners, the program provides a crash course on financial literacy.
Ms. LOURDES ORTIZ (Montebello Housing and Development Corporation): So that's the first practice. We do an intake application. We ask you for your documents to participate and approve--preapprove to get your loan. And when we review your credit score, we want...
NORRIS: Lourdes Ortiz is the loan program manager. She assists clients with the maze of paperwork. She bucks them up when buying seems impossible, and she hectors them to save every penny they can by skipping birthday gifts, restaurant dining or even movie rentals. She knows that's what it's going to take. Her clients pay an average of $380,000 for two-bedroom starter homes.
Ms. ORTIZ: Every time I have a home buyer class I wish for the whole crew that was there for them to close their escrow in the next 60 days. You know, I wish it could be that way, but it's--I know for the 20 clients that we have in a class I know only two or three that might be closing their loan in this year.
NORRIS: Randy Alvarado is one recent client. He's from El Salvador and he, his wife and their four children were renting a two-bedroom condo when the owner decided to sell. Under law, Alvarado had the first right of refusal to buy the condo, but he had no idea how. So he turned to Lourdes Ortiz.
Mr. RANDY ALVARADO (Home Buyer): I came twice to the classes, right, one in English and one in Spanish. If I had a question, `Lourdes, what does this mean? I don't get it.' And she was there. I mean, literally, I had to grab her hand to walk through this. Otherwise, I wouldn't have had a house.
NORRIS: Did you have to put money down?
Mr. ALVARADO: Yes.
NORRIS: How much?
Mr. ALVARADO: $6,942.
NORRIS: And how long did it take you to save that?
Mr. ALVARADO: Under the mattress. I don't trust banks.
NORRIS: Yeah.
Mr. ALVARADO: Sorry, I don't trust banks.
NORRIS: How long did it take you and your wife to save the down payment?
Mr. ALVARADO: We already had the money. We already had the money.
NORRIS: So you had the whole package together? You were...
Mr. ALVARADO: Yes, I was ready to rock and roll.
NORRIS: But Randy Alvarado still did not qualify for a big enough loan. Montebello Housing stepped in with a secondary mortgage that helped the Alvarados obtain a $52,000 no-interest loan that's not due for 30 years. That sealed the deal.
What does it mean to you now to be a homeowner?
Mr. ALVARADO: I'm very proud. I have a lot of respect for myself now. I have become a better father. I take care more of everything.
NORRIS: The twin forces of pride and self-interest that flow from ownership help to bond and build communities over time. More and more cities recognize that and are setting up housing assistance programs like Montebello to help prevent a class of renters from being permanently locked out of a competitive housing market.
But even people who are flush with cash are finding it hard to buy homes in LA County. Duke Cadavadarian(ph) and Alina Zenali(ph) were willing to put up to 30 percent down. He's a 37-year-old photographer. She's a 35-year-old banker. They have a toddler and are eager to move out of their small apartment in Glendale. They've been house hunting for more than two years, first planning to spend around $300,000, but they were outbid or simply rejected several times. Now they're willing to spend more than $800,000.
Ms. ALINA ZENALI (Home Buyer): We are very, very much ready and well-qualified. We can't get a house.
Mr. DUKE CADAVADARIAN (Home Buyer): I think the phrase `for sale' should be banned...
Ms. ZENALI: ...(Unintelligible).
Mr. CADAVADARIAN: ...should be banned from selling homes because the way we look at it, it's not a house for sale, it's a house for auction.
NORRIS: The couple sit with their agent, Cynthia Cohn(ph), and strategize about their next offer on a ranch-style home near good schools and with views of the mountains. At Cohn's suggestion, they're enhancing their bid with an emotional letter on what the house means to them.
Ms. ZENALI: It's a very nice house in La Crescenta. It's about 50 years old, only been owned by the same owner for that many years. She has to go somewhere else because she can't maintain the house anymore.
Mr. CADAVADARIAN: She has to go to a retirement home. She's ill and she likes to see the house go to a young couple and she's mentioned that to us three times already. She really likes us.
Ms. ZENALI: But the other obstacle is that not only the sellers, obviously, want the highest, you know, of all the bidders but the buyers. Competition of us being among 10 or 20 other buyers is just so much...
Mr. CADAVADARIAN: Very fierce, yeah, very fierce.
NORRIS: With no relief on the horizon, housing experts like USC's Gary Painter are rethinking the merits of home ownership.
Mr. PAINTER: It could be the case that that's simply not best for the city of Los Angeles. It allows households to be more mobile, able to find the best jobs for their families. Perhaps it lowers commute times. So it could be the case, the goal of having a 70 percent home ownership rate actually would be counterproductive to the economy in the city.
NORRIS: But families like Duke and Alina are not quite ready to let go of that dream of home ownership, no matter what it takes.
Ms. ZENALI: We know it will happen someday, but it's just so, so frustrating. It is. It is very, very hard. Someday it will be easy.
NORRIS: That someday finally came. They got the ranch home they bid on for $749,000. Great news, but it's still more than twice as much as they planned to spend when they originally began their house hunt.
SIEGEL: You're listening to ALL THINGS CONSIDERED from NPR News.