“We joke that it’s the only mobile home park with Mercedes and Teslas in the driveway. It’s like the new middle class in California.”
-Engineer at LinkedIn
As seen above, in high-valued markets like the Bay Area, home buying process has becoming increasingly challenging, even for those with very respectable incomes (LinkedIn Engineers are typically paid $100,000 to $200,000/per year).
Here in Santa Cruz, if you want to buy a home at the median home price of $790,000, you’ll end up paying about $3,933 / month with a 20% down ($158,000), 30-year fixed mortgage according to Zillow’s online mortgage calculator. There is a common rule of thumb that your housing should constitute ⅓ of your income, and so with this monthly payment, your annual income would need to be around $141,589 (not taking into account the downpayment).
This combination of downpayment and annual income are unrealistic expectations for most first time homebuyers. There are loan programs that can make it easier for these new homebuyers to enter the market (a few are described below), but it is imperative that they seek the help of a professional lender or loan broker to understand the additional fees and stipulations associated with these options.
Usually when demand pushes up prices as it has in Santa Cruz over the past few years, supply increases to meet growing demand. However, with a sea of permitting and planning regulations making it harder to build, housing development has not been able to keep up. Furthermore, rents can be as high as $2000+ for a one to two bedroom unit, making it even harder to save up for that large down payment.
The struggles outlined above are being felt throughout the entire state, especially in hot markets like ours, the Bay Area, and Los Angeles. As we see in Santa Cruz, the combination of high rents, low supply and under-building have made homeownership out of reach for many Californians. A renter survey by the California Association of Realtors (C.A.R.) shows that a majority of renters want to buy but, for 50%, this dream is simply out of reach in today’s market.
This is why the C.A.R. held a summit and invited industry leaders, professionals, academics, and community organizers to discuss the housing affordability crisis faced by our state. It is not yet clear what action plan will come out of this meeting, but we do know that something has to change.
Much of the discussion in the panel “Residential R.E. Development and Affordability: Supply, Zoning, and Land Use in CA” was focused on restrictions faced by developers. According to panelists, restrictions take the form of state-wide environmental and local regulation. CEQA was cited by two panelist as an impediment to cost-effective development. Other participants pointed out that local jurisdictions often have too much discriminatory power to reject or accept projects and can prolong the permitting process, which is very costly for developers.
According to Ben Metcalf, director at the state’s Department of Housing and Community Development, in many jurisdictions there is an accretion of barriers to development and not enough up-to-date planning. This has become an issue because planning in the past 25 years has been downzoning.
Majorly impacted areas, such as Mountain View, are starting to increasing the supply of housing. As this article by the New York Times states a reform-minded Mountain View City Council has supported an increase in its housing stock by as much as 50 percent – including as many as 10,000 units in the area around Google’s main campus.
A few months ago, we wrote about proposals to change zoning along the four main corridors in Santa Cruz County. It is clear that the City Council and County Board of Supervisors have decided that the best place to develop a substantial amount of much needed affordable housing will be along these major thoroughfares. However, this is a contentious topic for some of the residents of the corridors, as they anticipate increased traffic and noise.
Actions such as these and the C.A.R Summit described above suggest that state and local governing bodies are focused on and looking for solutions to housing affordability issues in our state.
What are my options?
If you are a first time homebuyer, or needing to relocate, you may be wondering: how will I ever buy in this kind of market?
There are programs in place to help.
As mentioned above, the downpayment is a major concern for many first time homebuyers. There are over 400 downpayment assistance programs here in California. You can find them here. Additionally, gift money can be used for a down payment, but there are nuances. You must receive a gift letter from the giver and ensure the funds are seasoned as explained in detail here.
As many know, rates are going up, however, FHA and VA still have low-rate loan options for first time home buyers. Additionally, FHA recently raised their loan limits and decreased their premiums, which is good news for first-time homebuyers. There was an increase the 2017 conforming loan limits for mortgages acquired by Fannie Mae and Freddie Mac to $424,100 on one-unit properties and a cap of $636,150 in high-cost areas. The previous loan limits were $417,000 and $625,500, respectively. Premium dropped by a quarter of a percentage point. The best way to take advantage of these loan programs is to talk to your banker or loan officer. If you do not have one, we have a list of experienced and highly knowledgeable loan officers in Santa Cruz who would be happy to help you explore your options.
So the truth is, homeownership is challenging for many right now because of high prices, high rents, and low supply. However, the state and local governments are working to remove barriers to development, improving the supply shortage in our state. Additionally, there are loan programs that are helping to break down walls to homeownership for new homeowners. Need help navigating this process? Contact Us, tell us a little bit about yourself and your current situation, and receive a free consultation with a professional Real Estate Broker today.
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