Results of a recent housing market study may cause some to have reservations about purchasing a home in California in the near future.
Economists at LendingTree, an online lending company, found that California still ranks as one of the least healthy housing markets in the country, despite having the largest housing market.
The study compared the 50 states and Washington, D.C. on five primary criteria and found that California ranked 50 out of 51 states, making it the second unhealthiest housing market in the nation. Only Nevada had a worse ranking.
“The study concluded recovery of some states will take much longer than others given the depth and impact of the fundamental building blocks we outlined in the study,” said Cameron Findlay, chief economist at LendingTree, in an e-mail. “In practice, any recovery or further decline will be highly regionalized, such as in California.”
The study is based on debt-to-income ratio, unemployment, home ownership, negative equity and the average loan-to-value ratio. California finished worse than the national average in four of the five categories.
For instance, the national average unemployment rate is 8.8 percent, while in California it is 12 percent.
“We see unemployment as a building block for the stability of a market,” Findlay said.
California’s front end debt to income, which is the percentage of one’s income going toward paying for a house, also ranked worse than the national average – 31 percent in California, compared to 26 percent nationally.
Home ownership in California is 56.1 percent, compared to 64.6 in the United States. The average loan to value is the mortgage amount divided by the appraised value of the property. California is at 70.6, while the national average is 70.2.
California’s negative equity is -34.8 percent, slightly better than the country’s average of -35 percent. An example of negative equity is when the loan is worth more than the house the loan was used to purchase. This leads to people either selling the house, or having it foreclosed on.
Basically, it is more difficult to own a home in California than in North Dakota, New Hampshire or Minnesota, the top three ranked states in the study, respectively.
However, real estate is local and these numbers don’t necessarily apply to all areas of California, said David Taormino, a real estate agent at Coldwell Banker in Davis.
“The number of sales in Davis is up by about 10 percent from last year’s activity,” Taormino said. “Prices are stable in Davis and have been for about 18 months. We are bouncing on the low end of our prices. If you were to compare Davis to north Natomas, you would think there was a boom in Davis.”
Even though California’s housing market is suffering, Taormino is optimistic that it will pick up in about a year from now.
“[California] is in the fifth year of housing recession, but my gut feeling is this is the last of the housing recession for California,” Taormino said. “In the middle to the end of 2012, we will see price appreciation.”
Martin Kenney, UC Davis professor of human and community development, agreed with Taormino, saying that while the market in California is bad overall, the housing will vary depending on location.
Kenney, however, isn’t as optimistic that California will get out the housing recession soon.
“There are two choices: incomes have to go up or prices of homes have to go down,” Kenney said. “Do you think our incomes are going to double in the next few years? Wages have not gone up in the last 10 years, which means we have been hit very hard and we will be hit harder.”
The average price of a home in California is $412,000 while average income is $58,931, according to the study.
MAX ROSENBLUM can be reached at managing@theaggie.org.
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