20% of recent home buyers spend half of pay on mortgages

More Californians are stretching their finances to afford the state's ever-more-expensive homes, with 20 percent of recent home buyers plowing more than half their monthly income into their mortgages. These "house-poor" Californians have been a significant contributor to the state's housing boom, according to a study by the Public Policy Institute of California, a Bay Area nonprofit think tank.

The study, which is being released today, tries to answer the question of just who is buying homes as prices have soared, pushing affordability rates to 16 percent statewide and 9 percent in San Diego County, according to the California Association of Realtors.

It concludes that many recent buyers aren't rich newcomers but moderate-income thirty-somethings who are accepting hefty mortgage payments to get into the market. The percentage of recent California home buyers spending half their monthly income on housing is twice the national average, said Hans Johnson, who co-authored the study. "For moderate-income Californians – those earning $30,000 to $60,000 – almost a third are spending more than half their income on housing," he added.

A recent home buyer is defined as those who bought homes in the past two years. According to the study, the state's home ownership rate is at its highest level in decades, reaching 59 percent in 2003, the most recent year for which data is available. That's up from 55 percent in 2000.

In San Diego, home ownership increased from 52 percent to 57 percent during the same period. The U.S. Department of Housing and Urban Development generally recommends that no more than 30 percent of monthly household income go to housing, although lenders say that standard is outdated.

"The norm for us today is closer to 40 percent, although we do have products that go up to 45 (percent) or 50 percent," said Lisa Faulk, executive vice president with AmNet Mortgage, a San Diego mortgage originator. AmNet's higher debt-to-income loans require higher credit scores, a history of job stability or other factors that balance out the higher risk of the additional debt, Faulk said.

"There are a wide range of lenders out there with different risk tolerances," she added. "We sell everything we originate, so we tend to be more conservative." Experts worry that some of these these debt-laden home buyers may be vulnerable if the housing market cools. Already, signs of a slowing market are on the horizon. San Diego's median home price in June of $496,000 was up just 5.1 percent from a year earlier – the county's lowest level of appreciation in eight years.

In addition to taking on more debt, some recent buyers have tapped creative mortgages such as interest-only loans to get into a house. In San Diego, 62 percent of home buyers opted for interest-only loans in 2004, according to First American/Loan Performance, a San Francisco mortgage research firm.

But not all Californians are taking on huge mortgage debt to get into the housing market, Johnson said. "People are moving from expensive areas like San Diego to less-expensive areas like inland parts of San Diego or the Inland Empire," he said. "And people are buying smaller housing units. About a third of recent buyers in California bought units that were two or fewer bedrooms."