Housing affordability stood at 25 percent of households who could afford to buy an entry-level home in California in the fourth quarter of 2006, according to the CALIFORNIA ASSOCIATION OF REALTORS® First-time Buyer Housing Affordability Index (FTB-HAI). This is compared to 27 percent for the same period a year ago.
The High Desert at 41 percent was the most affordable in the area. The minimum household income needed to purchase an entry-level home at $477,400 in California in the fourth quarter of 2006 was $96,760, based on an adjustable interest rate of 6.36 percent and assuming a 10 percent down payment. First-time buyers typically purchase a home equal to 85 percent of the prevailing median price.
A recent report by the U.S. Census Bureau showed the annual pace of construction spending continued its 10-month slowdown in January, falling 1.2 percent from a year ago. Residential construction spending declined 12.7 percent compared with one year earlier, while the value of nonresidential construction activity rose 13.5 percent according to the report.
Private transfer taxes – there is currently a loophole in California law that lets developers and other non-government entities impose “private transfer taxes” on homes every time the property is sold – with no oversight, no accountability and no limit on the number of separate private transfer taxes that can be piled onto a home. While this loophole has existed for a long time, some developers are now imposing them on their developments in order to avoid potential lawsuits by environmental organizations or to pre-empt government objections to the project. There is nothing in current law that prevents the imposition of these taxes for undeserved private gain. SB 670 (Correa), has been introduced to prohibit these “private transfer taxes.” (Source: C.A.R.) – A recent study by C.A.R. shows that every time the cost of a home increases by $10,000, another 200,000 purchasers can not afford to buy a home.
The federal banking agencies that regulate banks, thrifts, and credit unions, released a Statement on Subprime Mortgage Lending on March 2nd. Once published in the Federal Register, public comments will be due within 60 days.
In recent months, many industry players and consumer groups have raised concerns about subprime mortgages that have initial “teaser” rates that impose a significant payment shock when the rate resets at the end of the initial period.
The proposed Statement attempts to deal with the characteristics of certain types of subprime mortgages that could result in the borrower losing the home or paying very high refinancing costs. The Statement includes underwriting standards, consumer protection principles, and control systems for monitoring whether an institution’s practices are consistent with its policies and procedures, and supervisory review policies.
The Statement would require institutions to underwrite based on a fully indexed, fully amortizing repayment schedule, taking into account taxes and insurance. The Agencies want institutions to limit underwriting based on stated income and reduced documentation, since for “many borrowers” W-2s, pay stubs, and tax results should be available to document income. The statement also emphasizes the importance of explaining the terms of the loan to the consumers, especially the risk of payment shock and the impact of prepayment penalties, balloon payments, and absence of tax and insurance escrows.
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