BUYING FIRST HOME A CHALLENGE MEDIAN PRICE IN STATE DAUNTING.

Byline: GREGORY J. WILCOX Staff Writer

Rising prices and interest rates during the second quarter combined to drive down housing affordability across California to a record low for first-time buyers, a trade association said Thursday.

Just 23 percent of the state's first-time buyers could afford a home priced at the median of $482,000, according to a new version of the Housing Affordability Index compiled by the California Association of Realtors.

The figure is seven percentage points under last year's second-quarter level.

This is the first affordability index -- showing the percentage of households that can afford the median in their community -- using methodology that is supposed to better reflect current market conditions. The index is more than 20 years old and needed to be modified because of changes in the mortgage-finance arena. More products are available, and the underwriting criteria are different now.

For example, the first-time buyer index is based in part on a 10 percent down payment, with the purchase financed by an adjustable-rate loan.

The association analyzed first-time purchases going back over about 15 years and found that most involved an adjustable-rate loan, said Robert Kleinhenz, the association's deputy chief economist.

The old index included both first-time and repeat buyers, used a 30-year loan, 20 percent down payment and the assumption that no more than 30 percent of household income would service the mortgage.

The association applied its new formula to each quarter dating back to the beginning of 2003. At that time, affordability across California was 49 percent, and it has plunged by 53.1 percent since then.

A low level of affordability was expected because the median price hit a record high in the second quarter and adjustable rates increased, Kleinhenz said.

``It's not expected to improve over the balance of this year even if the median price stays put and rates ... come down a little bit,'' he added.

It takes about a half-percentage-point change in the adjustable rate to move the index up or down a point or two, depending on the market, he said.

And first-time buyers typically purchase homes that cost 85 percent of the prevailing median price.

As has been the pattern, the high desert, which includes the Antelope Valley, remained the most affordable in the state.

Santa Barbara was the least affordable region in the state, at 14 percent.

Of 13 counties captured in the index, only one, Contra Costa, saw affordability improve -- and that was from 30 percent to 31 percent.

The report also showed that:

In Los Angeles County, affordability has cratered 53.1 percent from the beginning of 2003 and is down 29.6 percent from a year ago.

Affordability in Ventura County is down 57.4 percent from the start of the tracking period and 11.5 percent annually.

High desert affordability fell 50 percent from the start and is off 22 percent from a year ago.

Jack Kyser, chief economist at the Los Angeles County Economic Development Corp., agrees that this is a more accurate way to gauge affordability.

But it paints the same kind of market snapshot as the old version, which was retired in January.

``The news is still depressing,'' Kyser said. ``And he's right in saying that affordability is not going to improve. It's going to be tough to deliver entry-level housing in Los Angeles and Orange counties.''

greg.wilcox(at)dailynews.com

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SOURCE: California Association of Realtors