By Jody Shenn California's home prices have continued to surge, and the increases have recently been concentrated among moderately priced homes. The state median resale price of a single-family detached home was a record $391,680 in the fourth quarter, 17.9% higher than a year earlier, the California Association of Realtors said Thursday. Records were set in every part of the state. The full-year median also rose 17.9%, the trade group said. And the December figure of $404,520 was up 19.4% from a year earlier, it reported last month. Leslie Appleton-Young, the group's chief economist, said the figures show affordability becoming more of an issue. "We're essentially seeing much faster price appreciation in the lower and moderate income areas." "The high end is actually moving pretty well too, but that demand is a lot thinner," she added. The percentage of households that can afford a median-priced California home stood at 23% in December, down 5% from a year earlier, the Realtors said. Industry experts commonly hold that appreciation brings larger loans, fewer defaults, and less danger that lenders or investors will lose money when defaults do occur. But rapid appreciation in the wrong places can hurt the lending market -- and that is happening in the state, said David Armstrong, the director of production at the Novato, Calif., lender First California Mortgage Co. "Affordability is a huge challenge here," he said. Mr. Armstrong said First California is talking to potential borrowers about such options as extended families' teaming up on mortgages or parents' pulling equity out of their homes to invest in their children's first ones. One key factor that lenders cannot control is that mortgage rates are coming off lows unseen in 45 years, and economists say they seem to be headed up, though at a modest pace. "The godsend is that rates are still low," Mr. Armstrong said. Raphael Bostic, the director of Casden Real Estate Economics Forecast at the Lusk Center for Real Estate at the University of Southern California in Los Angeles, said a "strengthening economy is going to mean people have more money in their pockets." But slow development in the state means affordability will remain an issue, he added. "If I had to guess, I would say we're not going to see a super-crisis in the next couple of years, but in the long run this in an issue the region's going to have to face." Ms. Appleton-Young said California's growing affordability problem, which the Realtors group expects to worsen to early-1990s levels this year, does not mean that low-end prices are unsustainable. Lack of supply is the biggest factor, she said. In the fourth quarter there was only a 1.98-month supply of California homes on the market, at the current rate of sales, versus a 2.5-month supply a year earlier, the Realtors reported. As a result, said Jon Ellis, a director of the California Mortgage Bankers Association, demand for home equity loans should rise. "A lot of people are going to be basically locked into their homes and may choose to remodel instead of move up," he said. Copyright 2004 Thomson Media Inc. All Rights Reserved. http://www.thomsonmedia.com http://www.americanbanker.com
