Housing Affordability remains a concern in the residential real estate market in California, with the share of first-time homebuyers declined to their second lowest level from 30.5 percent 2005 to 27.1 percent in 2006, according to a report released by the CALIFORNIA ASSOCIATION OF REALTORS®. 

The C.A.R. survey found that the share of buyers who used a second mortgage climbed from 38 percent in 2005 to 43 percent in 2006, more than triple the percentage since 2001 and the highest percentage since 1982.  The use of alternative loan products also registered a sharp increase.

Home sales in the Southern California region followed the direction of the state, declining 23 percent from the record level of 2005.  Inventory levels in this part of the state nearly tripled from a year ago, to levels in the range of their long-run average.  The Central Valley had the largest decline in sales activity among the three regions in California.

Other key findings from “The State of the California Housing Market” include:

q       A condo or town home was purchased by 29 percent of first-time homebuyers in 2006 compared with 33 percent in 2005.

q       The share of adjustable-rate and hybrid loans among all loans decreased from 43 percent in 2005 to 35 percent in 2006, but remained high by historical standards. Fixed-rate loans improved from a historical low of 57 percent in 2005 to 65 percent 2006.

q       Repeat buyers relied less on the sale proceeds from their previous residence as their primary source of down payment.  Only 34.7 percent of repeat buyers considered the sale proceeds as their primary source, compared with 41.4 percent in 2005 and 45.1 percent in 2004.

q       Savings, as a primary source increased from 31.9 percent in 2005 to 34.7 percent in 2006.  The share of savings has steadily increased from 29.2 percent since 2002.

q       The median down payment declined 8.8 percent from $80,000 in 2005 to $73,000 in 2006, despite an increase in the median home price.  This was the first time since 1995 that the median down payment dropped.

q       The median down payment for first-time homebuyers decreased from $25,000 in 2005 to $10,000 in 2006, while the median down payment for repeat buyers decreased from $119,000 to $100,000.

q       The median loan amount for first mortgages continued to increase in 2006 along with rising home prices, climbing 8.2 percent from $384,000 to $415,000 among all buyers.

q       The median first mortgage amount for first-time buyers increased 6.8 percent from $347,800 to $371,600, while the median first mortgage amount for repeat buyers increased 8.1 percent from $400,000 to $432,500.

More homebuyers used 100-percent financing to purchase their home.  About a fifth of all homes purchased (21.2 percent) were financed with a zero-down payment mortgage compared with 19.7 percent last year.  Recent use of zero-down mortgages has increased significantly since 2000, when they were used by just 4.5 percent of buyers.  Two of five first-time buyers (40.9 percent) made a zero-down payment on their home purchase; while just one in 10 repeat buyers (11.3 percent) purchased their home with no down payment.

The typical first-time buyer had a median age of 35, earned an annual household income of $80,000, and purchased a home with a historically high median price of $450,000.

Fifty percent of all first-time buyers were married and 35 percent of them were singles.  The share of married first-time buyers has been declining slowly but steadily since 2000.  Meanwhile, first-time buyer households with two or more individuals declined from 16.2 percent in 2005 to 13.5 percent in 2006.

The typical repeat buyer had a median age of 45, earned an annual household income of $120,000, and purchased a home with a historically high median price of $618,000.

Six of 10 repeat buyers were married, a quarter of them were singles, and one of eight was buyer households with two or more individuals.  Repeat buyer households with two or more individuals have increased from 6.6 percent in 2002 to 12.7 percent in 2006.

Almost half of these home buyers were married (47 percent), 37.6 percent were singles, and 13.4 percent were households with “two or more individuals.”

The typical home seller was 50 years old, had a two-member household, earned an annual household income of $100,000, and lived in the home for five years before selling it.

Fifty-five percent of sellers were married and 27 percent were singles.  Households with two or more individuals accounted for 12 percent of all sellers in 2006, virtually unchanged from that in 2005.

After peaking in 2005 at $220,643, the median net cash gain by sellers from all home sales declined 8.4 percent to $202,000.  It was the first time since 1997 that the median net cash gain fell.  The median net cash gain for single-family detached homes increased 1.6 percent to $250,000, while the median net cash gain for condo/town homes declined 2.7 percent to $180,000.