Three years of declining home prices have meant good news for first-time homebuyers, many of whom had been frozen out of the market when prices hit the stratosphere.

Affordability levels look the best in years for renters wanting to become owners, the California Association of Realtors reported yesterday.

The trade group said affordability in the second quarter rose to 59 percent in San Diego County, up from 46 percent the same period last year. In 2007, affordability stood at 23 percent.

However, recent pricing trends indicate that the bargains might be disappearing.

Erik Weichert, president of the San Diego Association of Realtors, said said first-timer buyers have benefited from low-priced foreclosed homes on the market, which earlier this year represented more than half of all resales.

“I think a lot of properties we have been concerned about were distressed properties,” Weichert said. “Now, a good portion are being purchased by first-time homebuyers, where they can start rebuilding their communities.”

The realty group defines a first-time home as one priced at 85 percent of the median for all single-family resale houses. The affordability level is based on what percentage of households, earning the qualifying median income, can afford those houses.

For San Diego, the latest figures showed a median price of $295,000, qualifying income of $52,550 and monthly housing payment of $1,750, including principal, interest, taxes and insurance. Nearly 60 percent of local households have the income necessary to buy such a house.

A year ago, the typical starter home cost $369,700, necessitating an income of $68,061 and monthly payment of $2,269.

In other words, in the second quarter of 2008, it took an extra $500 per month in house payments and $15,000 more in annual income to buy the same median house as this year.

But Weichert said the bottom seems to have been reached in starter-home prices, based on the overbidding and multiple offers for homes priced at $350,000 or less in recent months.

“That's why a lot of us are talking with the cities about allowing us to get those building permits” for new homes issued, he said. “We don't want to be in the same squeeze we were with the (limited) inventory that caused the prices to go through the roof.”

He was referring to the 2003-05 period when easy financing prompted frantic homebuying and a reduction in the homes on the market. If builders can get more homes built in the near future, that would ease the demand and inflationary pressures, Weichert said.

In the resale market, dropping inventories might be pushing up prices as would-be sellers sit on the sidelines hoping their values will increase from the low levels reached in the wake of the bursting housing bubble.

“We need more inventory — that will be helpful,” Weichert said.

According to MDA DataQuick, overall prices have been rebounding since the year's start. From $280,000 in January, the overall median price rose to $314,250 in June. The all-time peak was $517,500, set in November 2005.

The increase has been attributed partially to a change in market mix, with higher-priced homes pulling up a median that had been pushed down by the prevalence of low-cost distressed properties.

As good as San Diego's affordability looks today, it still lags the levels of other areas of California and the state and nation as a whole.

Neighboring Riverside County offers an affordability level of 79 percent on a starter home priced at $140,220, less than half San Diego's price. San Bernardino's is 82 percent on a home priced at $117,800.

California's affordability is 67 percent for a home priced at $224,180 and the national figure is 76 percent on a $147,990 home.

But San Diego offers slightly better affordability than in Los Angeles, 56 percent; San Francisco Bay Area, 55 percent; and Orange County, 53 percent — a pecking order that has existed for decades.

SOURCE: Union-Tribune