HOUSING OVER OUR HEADS? MORTGAGE EATS BIGGER SLICE OF PIE.

Byline: Gregory J. Wilcox Staff Writer

Many California households have stretched their finances to dangerous lengths by committing 50 percent or more of their monthly income to buy homes that would otherwise be unaffordable, according to a report being released today by the Public Policy Institute of California.

Titled ``California's Newest Homeowners, Affording the Unaffordable,'' the report says 52 percent of buyers who purchased homes in the state in the past two years are spending more than 30 percent of their income - long considered the normal percentage - to pay the mortgage. And one-fifth of them are spending more than 50 percent of their income.

The potential for homebuyers finding themselves seriously overextended comes at a time when home prices across the state are skyrocketing, driving the median-price home in the San Fernando Valley to a record $600,000, and when lenders are offering more creative ways to finance home purchases.

``My sense is that lending institutions now are more willing to lend on a higher loan-to-income ratio,'' said Hans Johnson, the lead author of the report from the nonprofit, nonpartisan institute.

``(A) remarkably large share of California residents ... 30 years old to 34 years old - a group not associated with high incomes - (is) finding ways to get into the market. Between 2000 and 2003, homeownership in this age group increased to 41 percent from 38 percent.

``I was surprised by that. You would think they would be the ones that were most (likely) priced out of the market.''

Dina Long, president of DL Mortgage, has seen an increasing number of customers who pay more than 50 percent of their income on home loans. And loan officers are creating new kinds of financing to help people get into the hot housing market.

``With the prices so high, a lot of people can't qualify otherwise.''

But Long is concerned that new loans allow people to buy homes they might not be able to afford.

``We have loans where you don't have to have a job. I've never seen a no-income loan before. It concerns me. People are buying houses they can't afford. The people are stretching; they're really stretching.''

The Public Policy Institute report contained other significant findings, including:

--Homeownership rates in California have been increasing and may have peaked. But California still ranks 48th of the 50 states in homeownership.

--Of buyers with incomes classified as low to moderate, 75 percent spend more than 30 percent of their income on housing.

--Californians who are married and have children account for 37 percent of recent home purchasers.

--Eighteen of the 20 metropolitan areas in the nation with the greatest rates of housing appreciation since 2000 are in California.

Each month the California Association of Realtors publishes its Housing Affordability Index, which measures the percentage of households that can afford the median-price home in their community. It's based in part on a down payment of 20 percent and monthly mortgage payments at 30 percent of household income.

With the 30 percent ``rule,'' figures for June - the most recent available - show 16 percent of California households could afford a home at what was then the median state price of $542,720, while 15 percent of Los Angeles County households could afford a home at the then-median $512,890.

But median-price homes become affordable to more than double that proportion of households - 34 percent, both countywide and statewide - if the mortgage payment is increased from 30 percent to 50 percent of income.

Jack Kyser, chief economist at the Los Angeles County Economic Development Corp., said this kind of creative financing could be buying some future financial pain.

``We're looking at a risk if the economy does turn down and interest rates start to rise. Some people may see their jobs go away, or their payments could go up (and) push them over the edge.''

Staff Writer Kerry Cavanaugh contributed to this report.

Gregory J. Wilcox, [phone]

greg.wilcox(at)dailynews.com