Housing prices rise in May, but at single-digit annual rate

By: BRADLEY J. FIKES - Staff Writer | Monday, June 13, 2005 9:05 PM PDT ∞

As the median price of an existing detached home in North County hit $620,000 in May, only 9 percent of the region's residents could hypothetically afford that home, according to a new report issued Monday by the North County Association of Realtors.

In its first release of what they're calling the North San Diego County Housing Affordability Index, the association reported that median prices rose 3 percent from April and 6.9 percent over May 2004 ---- continuing the slowing rate of appreciation of recent months.

To afford that home ---- with a 20 percent down payment and spending no more than a third of one's income on payments ---- would require an annual income of $146,198, the report concluded.

For condominiums, the median May price of $400,000 was up 1 percent over April and 4 percent over a year ago. At that price, 22 percent of North County residents could afford to buy, with a required income of $94,321, the report stated.

The association commissioned Robert Brown, chairman of the economics department at Cal State San Marcos, to prepare the regular monthly reports derived from Multiple Listing Service data.

Brown said the coming summer months, when housing prices typically increase the fastest, will determine whether the slower year-over-year increase reflects a fundamental shift of the market or an aberration.

What happens, he said, depends in large part on factors such as the percentage of homes which are bought as investments as opposed to owner-occupied, and the percentage bought by potentially risky financing plans such as interest-only and adjustable rate loans. The larger those percentages, he said, the greater the likelihood that local housing prices are not sustainable in the long run.

Another market observer, Russ Valone, president and chief executive of MarketPointe Realty Advisors, also noticed "a little bit of a slowdown in the rate of appreciation."

"The rate seem to have peaked last summer. I think these are good things in the market," he said.

A slowdown from the 20 percent annual increases of recent years is welcome, he added, because the high cost of housing is hurting the local economy. The cost is a constant "undertone" in announcements by companies that hire outside of San Diego instead of adding staff here, Valone said.

The 3 percent monthly price rise is very healthy when annualized, Valone said, amounting to more than 18 percent a year.

The association's report includes a new statistic: an index estimating what percentage of North County households can afford a median priced attached or detached home, attached or detached. It assumes homeowners place 20 percent down and spend no more than a third of their income on mortgage principle, interest, taxes and insurance.

Brown used those criteria because they have been traditional measures of a family's ability to buy a home. It was necessary to settle on a base criteria, because of the wide range of mortgage options available and the varying amounts of equity some buyers have to use as a down payment. said Diane McMillan, chief executive officer of the Realtors group.

For detached homes, the Housing Affordability Index was 9 percent in North County, compared with 13 percent in other areas of the county. The index remained constant at 10 percent from January until April, Brown wrote in his report. Median home prices and mortgage interest rates rose in May, he said, making detached homes less affordable.

For attached homes, the affordability index was much higher: 22 percent in May, down from 23 percent in April of this year and May of last year. During the first five months, the HAI stayed in the 22 percent-to-23 percent range.

The report cites a variation across North County communities. For single-family homes, the least affordable areas were south coastal communities of Cardiff, Solana Beach, Del Mar, Carmel Valley and Rancho Santa Fe. The most affordable were Escondido, Ramona, Oceanside and Vista.

The report did not include "days on market" ---- the average time houses are on the market before sale.

Contact staff writer Bradley J. Fikes at bfikes@nctimes.com or (760) 739-6641.