A year ago, as the housing bust eased and there were more properties for sale at lower prices, 37 percent of homebuyers in San Luis Obispo County could afford to buy a median-priced, single-family home.
Now, affordability is only 23 percent.
And though it’s better than the neighboring counties of Santa Barbara and Santa Cruz at 17 and 18 percent, respectively, buying a home here is increasingly out of reach.
In San Luis Obispo County, where the median household income was $60,264 last year, according to the latest information from the U.S. Census Bureau, a buyer would need to earn at least $100,180 to afford a median home price of $487,500.
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The county, which reached its highest level of affordability at 44 percent in February 1996, is among the least affordable communities in the state. In the third quarter, the county also was ranked one of the least affordable nationwide, according to the National Association of Home Builders/Wells Fargo Housing Opportunity Index.
“People say gee, the economy must be great because prices are up,” said James Liptak of James and Sydney Liptak Realty in Paso Robles. “But prices are up because of supply and demand.”
Liptak noted that finding the perfect home these days can be tough.
“Now, people are buying a home, not necessarily because they’re in love with it, but because it’s the only one they can get and there may not be another one that comes along,” he said.
FEWER HOMES, RISING PRICES
Median home prices vary monthly, depending on the number and sales price of homes sold then. In October, about 250 existing single-family homes were sold throughout San Luis Obispo County, for example.
According to Liptak’s sales data in October, the most expensive community to buy a home is Avila Beach, which had a median sales price that month of $994,500. The beach communities of Cayucos and Pismo were also on the low-affordability list, with medians of $647,000 and $640,000 respectively. The city of San Luis Obispo was next at $625,000.
The most affordable local communities in October, Liptak said, include: Oceano at $356,000; Santa Margarita at $377,500; and Grover Beach at $382,900. Paso Robles and Los Osos were not far behind with a median of more than $384,000 and $390,000 respectively.
Prices in most communities, with the exception of Cayucos and Morro Bay, experienced a year-over-year increase (October 2012 to October 2013), Liptak said.
There are many reasons why one community might be more affordable than another. Typically, homes in close proximity to the ocean tend to fetch higher prices than those farther inland. The North County, which has more housing stock, also has remained on the more affordable side.
Economists and Realtors say that the slide in affordability is mainly due to a lack of inventory. After the housing crash, investors and foreign buyers with cash, as well as some parents seeking to buy properties for their children, snapped up good deals, said Selma Hepp, senior economist at the California Association of Realtors.
Starting in February 2012 and throughout the rest of last year, there was significant activity from these groups, she said, leading to fewer available homes. The county hit its lowest median price of $328,750 in February 2011, after reaching a high of $617,260 in June 2006, according to the association, which tracks existing, single-family homes.
Even though many people remain interested in buying a home, the supply has not kept up with demand because potential sellers, many of whom owe more on their house than it’s worth, have been waiting for higher prices to return. New construction has also been lacking, Hepp said.
All of those factors have caused a constriction in the supply, and that “has pushed prices up a lot,” she said, noting that an uptick in mortgage interest rates could be another contributing factor to falling affordability.
A TIGHT MARKET
Fewer foreclosures and short sales, lower inventory – about three to five months of supply rather than a balanced market of about six months – and high demand is “edging up the prices” on the North Coast, said Sherry Sim, president of the Scenic Coast Association of Realtors, which represents Cambria, Cayucos, Morro Bay and Los Osos.
The median sales price for the four North Coast communities has increased by nearly 11 percent year-over-year for the first nine months of 2013, she said.
“We have seen improvement in equity, but not to such an extent where there are homeowners going to upgrade,” Sim said. “They are not moving up, and so there will be fewer homes available for first-time homebuyers.”
Although the Cal Poly market remains fairly strong, whether it’s a condominium or a house, the market overall continues to be tight in San Luis Obispo, where there are few homes under $500,000, said Realtor Steve Delmartini of San Luis Obispo Realty. The city has little in the way of housing stock, and what exists is aging and expensive, he said.
“We don’t build a lot here,” he said. “There are new homes at Serra Meadows, with the release of about 17 homes. And we have the Moylan Terrace development. Serra is a detached product; Moylan is an attached product. So, you have two ends of the spectrum, with the attached more affordable and the detached at more market price.”
Delmartini does not predict a change in San Luis Obispo anytime soon, not unless there’s a reason to push developers to build more housing that’s affordable for working families.
“There’s a lot of stuff that could turn the tide, but it has to be the perfect storm to cause price competition that will help the consumer,” he said. “Three to five years from now, you could see an increase in development that could cause a ripple in pricing.”
In the North County, there’s less on the market than two years ago, said Realtor Marty Diffley, who sells homes there Coldwell Banker Premier Real Estate. But prices aren’t rising so fast that all of the good deals are gone for first-time homebuyers.
Diffley noted that traditional three-bedroom, two-bath homes on good-size lots are still available below the $400,000 range in Atascadero and Paso Robles, and those that are priced right sell fast.
“There’s no such thing as buying on a contingent of selling your own house,” she said. “No one is going to take an offer like that when another buyer is right behind them.”
Liptak, a North County agent and former president of the California Association of Realtors, said the greater housing stock in Paso Robles has helped it to maintain its affordability. However, he fears the affordability could be short-lived given the acute water issues in that community as well as higher permit costs.
“If you can’t drill a well, you can’t build,” he said. “Any development is going to be pushed inside the city limits, and the building permit costs have gone up significantly. So, it will be difficult to add affordable housing to the new housing stock.”
In the South County, Realtor Kathy Fissori of Keller Williams Realty said inventory is “steadily going up.”
“Sellers that have been on the fence, deciding whether they should sell or wait until next year…I feel that a lot of people are deciding that it is a good time to sell,” she said.
Moreover, Fissori noted that South County communities like Nipomo, Grover Beach, and to a lesser extent, Arroyo Grande, tend to be more affordable than San Luis Obispo, and that has remained attractive to clients. Oceanfront properties in communities like Pismo Beach are usually more expensive.
“If someone does want to get into a home, location does make a difference,” she said.
Fissori’s team has worked with quite a few investors looking to purchase potential rental properties, as well as people with cash who want a second home to move to when they retire.
“I think there’s a little bit more trust in the economy,” she said.
BETTER DAYS AHEAD?
Hepp of the California Association of Realtors said the situation could improve as sellers who had been reluctant to put their home on the market decide to do so.
“The inventory has improved in the past couple of months as people realize prices will go as far as they will for a little while,” she said. “We won’t see the increases we saw in the last year and a half; we’ve had an extraordinary last couple of years.”
Whether greater inventory translates into greater affordability in such a small, concentrated market remains to be seen, she said.
“I think the price growth is going to slow down, but we’ve already lost so much on the affordability side, and we are again in a very expensive market, and that will constrain a lot of buyers,” Hepp said.