Hot California market daunts first-time buyers

Martin Wolk Chief economics correspondent • Profile • E-mail

Pity the poor first-time home buyer in California. With the median price of a home in the Golden State crossing $500,000 for the first time, getting into that “starter” home requires  perseverance, luck and a willingness to think small.

Maya Vestal, 25, who works for a biotech company, took the plunge this month with her boyfriend, plunking down $585,000 for a 1,200-square-foot home near San Jose in a neighborhood she describes as “not great.”

Frankly, the three-bedroom, one-bath house doesn’t sound all that great either. Built in 1940, it needs about $50,000 worth of work including new plumbing, new wiring and a new kitchen, she figures. “The only thing we’re keeping are the floors, which are beautiful, original hardwood.”

Together, Vestal and her boyfriend, a 25-year-old city worker, earn more than $100,000 a year, but the new $3,800 monthly mortgage payments will eat up nearly 70 percent of the couple’s take-home pay.

“It’s a lot of money, and it’s really scary,” she said. “We really like to travel, and we probably won’t be able to do that so much.”

But with prices going up so rapidly and long-term interest rates lingering at their lowest levels in four decades, Vestal and her boyfriend didn’t want to risk waiting.

“We felt if prices or interest rates go up, we’ll be priced out of the market,” she said. “Even if rates went up half a percent we wouldn’t be able to afford a house.”

Vestal can consider herself one of the lucky ones.

All over California young working people in their 20s and 30s are coming up empty as they reach for the American dream of homeownership. Only about 26 percent of sales in California go to first-time home buyers, compared with 40 percent nationally, said Leslie Appleton-Young, chief economist for the California Association of Realtors.

“The trade-up, repeat buyers are in great shape,” she said. “They have experienced remarkable, unprecedented equity growth. If you’re on the outside looking in, it’s very tough.”

At $509,230, the median price of a house sold in California last month was up 12.5 percent from the level a year earlier, according to the Realtors. That actually represents a slowdown from the average 20 percent annual gain of the past three years, supporting the view of analysts that California is headed for a “soft landing” after the phenomenal sales growth of the past several years.

“The rate of price appreciation is slowing,” said Delores Conway, director of the Casden forecast at the USC Lusk Center for Real Estate. “The whole question is, will we hit a soft landing? I think the general expectation is yes, we probably will.”

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