First-time buyers find silver lining in foreclosure cloud

More than one-third of Los Angeles County families could afford to buy an entry-level home in the first quarter - 66 percent more than a year earlier - thanks to an epidemic of foreclosures that depressed prices, a trade group said Tuesday.

During the first three months of 2008, 35 percent of county households could afford to buy their first home, the California Association of Realtors said. That compares with 21 percent a year earlier and 28 percent during the last quarter of 2007.

The latest figures are the highest since the association began tracking housing affordability in 2003 - another hopeful sign for Southern California's troubled real-estate market, analysts say.

"I would personally wait a year, but if you are a buyer, this would be a good time to buy a home," said Dennis Torres, director of real estate operations for Pepperdine University's Graziadio School of Business and Management.

Tuesday's report came a day after Data Quick Information Systems reported that house and condo sales were 22 percent higher in April than in March. Most of the sales were in areas hard hit by foreclosures, with homes less than $500,000 accounting for 66 percent of sales.

Torres predicted that prices will continue to fall, putting houses within reach of more potential buyers but also causing anguish for homeowners watching their equity evaporate.

He cautioned, however, that worries about inflation could result in higher interest rates that would again put a drag on affordability.

"We haven't been visited by our old friend rapid inflation, but he's out there and coming to dinner," Torres said.

The association's First-time Buyer Housing Affordability Index reflects the percentage of households that can afford to buy an entry-level home - one priced at 85percent of the median price in their area.

That factored out to a $390,450 home in Los Angeles County in the first quarter. A family would have had to earn $74,320 a year to qualify for it.

A year earlier, before the credit crisis took hold and the real-estate market tumbled, an entry-level home would have cost $496,120. That meant the qualifying income level was $100,000 then.

The index assumes a 10 percent down payment and an interest rate of 5.65 percent.

The association index also demonstrates how the current market conditions vary from community to community.

For example, affordability ranged from a high of 64 percent in the High Desert, which includes the Antelope Valley, to a low of 29 percent in Monterey.

"Essentially we're working our way out of the downturn and coming back up," said Leslie Appleton-Young, vice president and chief economist of the Los Angeles-based association.

"The moderate to low part of the market - under $500,000 - is where you are seeing the activity. People are responding to lower prices," she said.

And mortgage rates are helping, too. The rate for a 30-year fixed-rate loan averaged 5.65 percent in this year's first quarter, compared with 6.3 percent a year earlier.

The association report also showed that:

The monthly mortgage payment for an entry-level home in Los Angeles County, including taxes and insurance, was $2,480.

Statewide, 44 percent of households could afford an entry-level home in the first quarter, compared with 33 percent during the last quarter of 2007. The increase was attributed to a 1percentage-point decrease in interest rates and a 14.3 percent drop in the entry-level median home price.

Statewide, the minimum household income needed to buy an entry-level home costing $356,350 was $67,830. The monthly payment would be $2,260.

In Ventura County, 43 percent of households earned the $86,400 a year needed to buy an entry-level home costing $453,890. The monthly mortgage payment would be $2,880.

In the Inland Empire, hard hit by foreclosures and price declines, 57 percent of households earned the $46,450 needed to buy an entry-level house costing $244,000. The payment would be $1,550.

Appleton-Young expects affordability to continue improving as more foreclosed homes come on the market and drive prices down further.

And that's good news for someone looking for a first home.

"I think they are going to make a dent in the supply. Is it going to evaporate overnight? Absolutely not. It will be a slow workout," she said. "We're still into the wave of foreclosures."

By Gregory J. Wilcox, Staff Writer
greg.wilcox@dailynews.com 818-713-3743

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