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Lima, Santa Barbara exemplify extremes of affordability

Holden Lewis

Lima, Ohio has the most-affordable housing in the country, while Santa Barbara, Calif., resides at the other end of the spectrum, according to the National Association of Home Builders.

Nine of the 10 most-affordable markets in the organization's Housing Opportunity Index are in Ohio, Michigan or Illinois. All of the 10 least-affordable housing markets are in California.
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The builders' organization blames "excessive regulations" for much of the lack of affordability. Indeed, that's part of the problem in high-priced California, but the Golden State's enduring appeal has something to do with it, too.

Santa Barbara is sunny and nestled between mountains and sea, with little room to spread out. According to the U.S. Department of Housing and Urban Development, the median household income in Santa Barbara County in 2004 was $64,700. The NAHB says the median price of a home in metro Santa Barbara was $447,000 in the third quarter of 2004. To get a sense of the pace of price appreciation there, consider that the California Association of Realtors says the median price of a home in the county was $668,750 in November, just a couple months later.

Affordable Lima (pronounced like the bean, not the city in Peru) could scarcely be more different from Santa Barbara. Its skies are gray most of the winter, and it is surrounded by abundant, flat farmland that is pretty, but unspectacular. HUD says Lima's median family income in 2004 was $52,500. The median sale price of all homes sold in the third quarter of 2004 was $82,000, according to the NAHB.

In other words, a typical home in Santa Barbara costs more than 10 times a typical family's income, while a home in Lima costs about 1.6 times a family's income.

The home builders rank 162 metropolitan areas by estimating the percentage of homes sold that would be affordable to a family earning the area's median household income. In Lima, a family earning the median household income could have afforded 90.5 percent of the homes sold there last summer. In Santa Barbara, less than 5 percent of the homes sold would have been affordable to someone making the median household income.

"Ultimately, higher home prices are a matter of strong buyer demand," says Bobby Rayburn, a home builder and president of the NAHB. "But a big contributor has been a shortage of land available for development due to growth controls, and the high cost of regulations in general.

"This includes everything from excessive impact and utility hookup fees to the price of long delays for subdivision approvals," Rayburn continues. "Local jurisdictions that have curtailed production of affordable and workforce housing through excessive regulations should consider this a wake-up call."

There is some truth to the NAHB's criticism of regulation, experts say. California has strong environmental protections, and it's hard to get permits to build houses on hillsides that are prone to fires and landslides. Once people buy their idyllic piece of California, they don't want newcomers to crowd them out -- and politicians ignore homeowners' wishes at their peril.

It's still not easy to build, especially in affluent communities, says David Barca, senior broker for ZipRealty out of the company's Oakland office. "I think it's loosening up a little bit," he says; some cities are considering allowing "mother-in-law units" -- basements, garages or attics with separate access.

San Jose and other cities have loan programs for teachers, firefighters, police officers and municipal employees to help them afford homes near their workplaces. While local governments try to come up with affordable housing policies that don't irk the voters who already live there, lenders are charging ahead with clever mortgage products.

Brett Vratil, a Realtor with ZipRealty who sells mostly in west Los Angeles, says almost all of his customers get interest-only mortgages, often for the total purchase price. Interest-only loans increase buyers' purchasing power by about 25 percent, Vratil says, and that's often what it takes to get someone into a home in Los Angeles.

Fixed-rate mortgages are becoming increasingly rare in California because adjustable-rate mortgages, or ARMs, have lower rates. One of the most popular loans is the 5/1 hybrid ARM, which starts out with a rate that lasts five years, then adjusts annually thereafter. The initial rate on a 5/1 ARM is about three-quarters of a percentage point less than a comparable 30-year fixed.

The difference can spell big savings. A $500,000 loan at 6 percent has a monthly principal-and-interest payment of $2,998. A 5/1 ARM at 5.25 percent starts out with monthly principal and interest of $2,761. If the loan is interest-only, the monthly payment is about $2,188.

That's still hard to afford on Santa Barbara's median income of $64,700. How can they afford it? Simple, Barca says: 73 percent of Californians are repeat buyers. They are homeowners who sell their houses for much more than they paid a few years ago. Then they use their capital gains to make down payments on their new houses. That way, they don't have to borrow so much.

That's how, Barca says, "We're having record sales and the least affordability that you can imagine."

See also: 25 most-affordable markets and 25 least-affordable markets


-- Posted: Jan. 13, 2005




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