First-time homebuyers have just received some bad news: California has been pegged as the hardest state in the U.S. to buy a home.
This report comes from Claes Bell, an analyst with Bankrate.com. In an interview with the Los Angeles Times, Bell said California's rank can partially be attributed to the high percentage of income Californians spend on housing – at 35.2 percent, compared to the national average of 19.4 percent. Bell said housing costs should generally be less than 28 percent of an individual's gross income.
Gary Painter, a USC public policy professor who focuses on homeownership and housing markets, said California's unique environment drives up home prices while limiting opportunities for growth.
"[In California] there are environmental amenities – the beaches and the mountains – that actually make developing housing in every direction impossible, and also makes living in California a premium," Painter said. "So there's a lot of people from around the world who want to live here, either full-time or part-time, and that places extra demands on the housing market."
High housing prices might be driving young people and even families to rent residences rather than buying them outright. A recent study found that in Los Angeles, nearly 54 percent of residents are renters. This the fourth-highest rate in the nation, and more than 60 percent of those rented homes are occupied by families.
"In the Los Angeles region in particular, it is becoming more and more expensive to have close access to the amenities that everyone wants, such as access to jobs and cultural amenities," Painter said. "Young adults have to make some trade-offs. Their incomes are not as high when they first enter their career, so they either are going to have to buy less housing or they're going to have to decide to live further away from the kinds of amenities they prefer."
Of the young people who are able to purchase a home, many end up regretting it. NerdWallet, a website that offers free financial tools and advice, recently published its Home Buyer Reality Report, which notes that about 60 percent of millennial and Generation X homeowners said they had regrets and "would do things differently the next time around in the home-buying process." Just 38 percent of baby boomers said they regretted doing the same thing.
Painter notes that the challenges young would-be homebuyers face are not all that different from their older counterparts – in fact, they both have to prioritize what they prefer, bigger spaces or better locations.
Real estate agent Andy May says millennials are more interested in living in smaller houses in good, walkable neighborhoods, instead of fancy homes with high-end fixtures. However, it's hard to find open properties that go for less than $500,000 in the locations that they're looking for, like Silver Lake, Echo Park, and Los Feliz and similar neighborhoods.
As inventory drops and prices rise, the down payment on a home itself might be one of the most significant factors of the home buying process. So, May says, he's witnessed millennials purchasing condos as an alternative, because for young adults straight out of college, those prices are too hard to reach.
"If you want to put down for a house, the average home in Los Angeles County sells for about $550,000 so if you're going to put 20 percent down, that's almost $100,000," May said. "If you have student loans, that impacts your ability to purchase a home, so very few millennials are putting 20 percent down. You can still buy a house with as low as 3 percent, but loans are harder to get."
Anthony Amorelli used to live in Los Angeles but recently moved to San Francisco. According to him, Los Angeles still has more accessible housing than San Francisco, where it's substantially the housing market is substantially more crowded.
"It's kind of intimidating going out there and not being able to afford something," Amorelli said, "[especially in] an area that you think you should be able[to afford to] to live in."