California home prices are out of reach for a historically high number of first-time buyers and the reasons why are key to the housing market's near future.

Buyers typically don't get concerned about home price increases until they begin to affect the bottom line -- the ability to meet the monthly mortgage payment.

And that's just what today's buyers face in a region that could be in for longer period of gloom than anticipated. Any forecasts of a recovering market in 2007 aren't taking into account the underlying conditions in the Golden State's strained housing market.

In the past six years, more and more buyers – especially first timers who've traditionally carried the market -- have been left twisting in the wind.

Interest rates have fallen and are actually lower today than they were five to six years ago when the boom began. Unfortunately, they aren't nearly low enough to compensate for the lackluster growth in incomes and home price boom.

The California Association of Realtors (CAR) reported fewer than one in four (24 percent) of first-time home buyers could afford the median-priced home in the third quarter this year, up only slightly from 23 percent during the second quarter.

That's not surprising.

The average fixed rate of interest on conforming loans has declined more than 18 percent from 7.8 percent in October of 2000 to 6.4 percent in October of 2006, according to Freddie Mac, but California's median price of homes at $252,510 in October 2000, has soared nearly 117 percent to $548,680 in October this year, according to the California Association of Realtors.

During the same period, according to the U.S. Census, the California median household income has risen only about 8 percent -- in fits and starts.

That makes California's 28.7 decrease in home sales in October not unexpected.

"While it appears that home sales have stabilized over the past three months, it’s too soon to say whether or not the market has bottomed out," said CAR president Colleen Badagliacco of San Jose.

Without more affordability any stabilization in sales could be only temporary.

For all buyers, California's housing affordability remains the lowest in the nation, according to the California Building Industry Association (CBIA), which says the shortage of housing also contributes to higher prices.

In 20 California metro areas, families earning the median income can afford fewer than 10 percent of the homes available, CBIA says.

Never mind that prices have fallen in many regions, affordability also fell in 14 of the 28 California metro areas surveyed.

DataQuick Information Systems reported 52.4 percent, or 195 out of 372 cities and communities, showed an increase in their median home prices from a year ago.

That makes it tough to sell homes.

"The existing home market continues to be impacted by the inventory of new homes for sale, especially in areas where there has been excess capacity since the start of the year," said CAR economist Leslie Appleton-Young.

"The unsold inventory of existing homes is at 7.2 months, twice last year’s inventory. Higher inventory levels are a key factor in the moderation of home price appreciation," she added.

Published: November 30, 2006

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Broderick Perkins parlayed a career in old-school journalism into a contemporary digital news service that really hits home. The award-winning consumer journalist, originally from Wilmington, DE, is founder, publisher and executive editor of the bootstrap DeadlineNews Group, a Silicon Valley-based editorial content and consulting service specializing in residential real estate, consumer news and related editorial consulting services. The DeadlineNews Group includes the website, DeadlineNews.com, offering real estate editorial content and consulting services, and its back shop, the Deadline Newsroom, an open house on news that really hits home. Perkins obtained his formal journalism education from University of Delaware and a journalism boot camp, the Institute of Journalism Education at the University of California-Berkeley. He went on to 20 years of service as a daily newspaper journalist at the Wilmington, DE News Journal and San Jose, CA Mercury News. Perkins covered housing on the San Jose Mercury News reporting team which earned a General News Reporting Pulitzer Prize in 1989 for coverage of the Loma Prieta earthquake. He has also produced real estate, consumer and small business content for the Wall Street Journal, Los Angeles Times, RealtyTimes.com, Nolo.com, Better Homes and Gardens, the National Association of Realtors, Homestore/Move and Intuit/Quicken among more than three dozen publications. In addition to managing the DeadlineNews Group, Perkins most recently served as chief editorial consultant for Nolo's Essential Guide To Buying Your First Home, Nolo, and writes real estate television scripts for RealtyTimes.com.