California Homebuyers Pushing The Financial Envelope To “Afford The Unaffordable”

The Public Policy Institute of California (PPIC) has released a twenty page report which examines current trends in housing affordability and mortgage financing in California. Despite rapidly escalating housing prices, sales of single family homes have continued at record levels. So how do California homebuyers afford to purchase homes in this market? According to PPIC, more Californians are paying a larger percentage of their annual incomes on housing costs with as many as 20% of recent homebuyers spending more than 50% of their incomes on housing, leaving them with less disposable income than ever before. At the same time, more new homebuyers are relying upon non-traditional mortgages, including option ARMS and interest only mortgages, to achieve affordable monthly payments as loan balances rise faster than borrowers' incomes. These trends suggest a potential for higher default risk if California's overheated housing markets begin to cool as many economists predict. For a summary of the PPIC report, read the accompanying press release.