Housing Affordability Dips, Rate Drop Offers Little Help.The surprise cut in interest rates by the Federal Reserve Board may offer scant relief to potential homebuyers out kicking the tires Kicking the Tires Slang for doing the grassroots research of a prospective investment. Notes: Individual investors and fund managers alike partake in tire kicking. in Los Angeles Los Angeles (lôs ăn`jələs, lŏs, ăn`jəlēz'), city (1990 pop. 3,485,398), seat of Los Angeles co., S Calif.; inc. 1850. County. Homes are scarce and prices remain high. Housing affordability in Los Angeles fell to 34 percent in November, down 5 percentage points from November 1999, according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. the California Association of Realtors. That means that just' 34 percent of the households in L.A. County can afford to purchase a median-priced home here. Although housing affordability in L.A. still compares favorably to the Bay Area, where it has fallen to 17 percent, and to San Diego San Diego (săn dēā`gō), city (1990 pop. 1,110,549), seat of San Diego co., S Calif., on San Diego Bay; inc. 1850. San Diego includes the unincorporated communities of La Jolla and Spring Valley. Coronado is across the bay. , which was down to 23 percent, it is far below the national average of 54 percent. The reason fewer Angelenos can afford a house here is primarily that no new ones are getting built even as the local economy continues to grow and create jobs. The result is right out of Economics 101: more people are chasing a limited supply of available homes and prices are going up. In November, the median home price in L.A. was $228,800, according to CAR, up 13.2 percent from the prior year. Last week's cut in interest rates is not likely to significantly impact that trend. "It will help, everything else being the same, and it is going to make a little more affordable to buy a home here," said Leslie Appleton-Young, chief economist The Chief Economist is a single position job class having primary responsibility for the development, coordination, and production of economic and financial analysis. It is distinguished from the other economist positions by the broader scope of responsibility encompassing the with CAR. "But it is not going to compensate for double-digit price appreciation." "Every little drop in interest rates is going to help us," agreed Jeff Mezger, chief operating officer Chief Operating Officer (COO) The officer of a firm responsible for day-to-day management, usually the president or an executive vice-president. of Kaufman & Broad Home Corp. "Our niche market A niche market also known as a target market is a focused, targetable portion (subset) of a market sector. By definition, then, a business that focuses on a niche market is addressing a need for a product or service that is not being addressed by mainstream providers. in L.A. County is mainly entry-level buyers who are really sensitive to any softening of mortgage rates." Extending the trend Fixed mortgage interest rates have already started to inch down the last few months, a trend Appleton-Young expects to continue. This, in turn, will bring more buyers into the market even as home prices are likely to continue climb, ending up just beyond the grasp of many buyers as fast as they seemed to have gotten within reach. "It is a vicious circle A Vicious Circle (1996) is a novel by Amanda Craig which dissects and satirizes contemporary British society. In particular, it describes the world of publishing -- its aspiring young authors, busy agents and opportunist literary critics. ," said Appleton-Young. "Every month more people get priced out Priced out The market has already incorporated information, such as a low dividend, into the price of a stock. of the market." Home builders point to local governments as the main impediment A disability or obstruction that prevents an individual from entering into a contract. Infancy, for example, is an impediment in making certain contracts. Impediments to marriage include such factors as consanguinity between the parties or an earlier marriage that is still valid. on their building activity. "The affordability crisis is driven by the cost of land and that of entitlement permits," said Mezger. As the approval process for new subdivisions has gotten longer, costlier, and less predictable, builders are discouraged from undertaking new development and fewer new homes get built. The most important result of the Fed's actions may not be that it is going to make homes much more affordable, but that it will make people more confident in buying a new place. After three months of mostly negative economic news, consumer confidence had started to slip and the Fed's unequivocal signal that it's paying attention Noun 1. paying attention - paying particular notice (as to children or helpless people); "his attentiveness to her wishes"; "he spends without heed to the consequences" attentiveness, heed, regard may make more people comfortable in making a decision to buy. "The psychological effect cannot be underestimated," said Scott Gibson, executive vice president and general manager for Southern California Southern California, also colloquially known as SoCal, is the southern portion of the U.S. state of California. Centered on the cities of Los Angeles and San Diego, Southern California is home to nearly 24 million people and is the nation's second most populated region, with Coldwell Banker. "Potential buyers have gotten more discerning and taken more of a wait-and-see attitude recently. This will encourage people to buy, because it sends a signal that the economic future is going to be stable." Gibson expects however that the price appreciation of homes in Los Angeles is going to slow down this year, as buyers will be more reluctant to pay top prices. In addition, as mortgage rates come down, at least some buyers will be tempted to hold out to make sure that they get the lowest possible rate. "Inventory will start building up towards summer," said Gibson. "It will still be very low, but it is going to steady prices a little more."
Getting in the Door
Households able to buy median-priced home.
Location Nov.'00 Oct.'00 Nov.'99
California - single family 31% 30% 36%
United States - single family 54 54 55
Los Angeles 34 35 39
San Fransisco Bay Area 17 17 25
Orange County 28 28 32
Santa Clara 17 18 26
San Diego 23 23 31
Sacramento 51 52 57
Riverside/San Bernardino 47 56 51
Ventura 33 31 40
Palm Springs/Lower Desert, 33 34 41
San Luis Obispo 25 20 32
Source: California Association of Realtors
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