I agree with the government affairs director of the Homebuilders Association of the Central Coast that we are facing “the worst economic crisis since the Great Depression” (“Get home buyers back in the market,” Dec. 25). Although the Homebuilder’s lobbyist and I agree that there is a problem, I strongly disagree with his organization’s statement that falling home prices are the core of this current economic crisis.
The core of the current economic crisis is the housing bubble, which more than doubled the price of housing in many areas across the United States from 2000 to 2007. Housing prices in California, including our Central Coast, rose to extremely unaffordable levels. For example, in 1999 more that 40 percent of the homes in the Central Coast were affordable to families earning the median income. By 2007, at the height of the housing bubble, less than six percent of the homes were affordable to median income families.
The housing bubble did pop and prices are returning to more affordable levels. According to the National Association of Homebuilders, since the housing bubble popped in 2007, housing in the San Luis Obispo-Paso Robles region has become slightly more affordable: 13.4 percent of our housing is now affordable to families with median incomes.
How much more affordable will housing become? Last week The Wall Street Journal stated, “Despite the massive declines over the past two years, housing prices [in the major metro areas] in October remained 58 percent higher compared with the early 2000 level.” Jim Lokey, former president of Mid State Bank and current chairman of the California Bankers Association answered that question recently when he said that “housing prices will have to return to a level that’s compatible with what people earn.” I agree.
It should be noted that a positive aspect of housing returning to more affordable levels, is increased home sales. The California Association of Realtors stated that this October’s “sales of existing, detached homes was more than double the year earlier level.”
The biggest area of disagreement I have with the Homebuilders is not their belief that falling home prices are at the core of the current economic crisis, it is their proposed solution to the problem they have defined. They propose that our taxes be used to prop up housing prices at still unaffordable levels through various government subsidies. This makes no sense to the families who still cannot afford houses at inflated bubble prices, and it certainly does not make sense to taxpayers who are increasingly being asked to bail out this economy. Let housing prices return to levels that are compatible with what people earn, let home sales rise accordingly, and do not add to the taxpayers’ burden.
This article appears in Jan 15-22, 2009.