Tuesday, March 11, 2008 | For several months, the least expensive units for sale in La Boheme, a North Park condo project, were a handful of identically priced, one-bedroom, one-bathroom units on the third and fourth floors.
The builder, D.R. Horton, had three of those on the market on Monday.
But a few weeks ago, the units, priced at $183,701, gained some competition in the building — another one-bedroom, one-bathroom unit with six more square feet. It was being sold by someone who bought the condo new in 2006. The asking price: $166,000 to $168,000.
One price was set by the government as part of an affordable housing program. One price was set by the market. Which one is offering the lowest price? At La Boheme, it’s the market.
That’s the state of the region’s housing market today. In neighborhoods where the government helps build homes for the lower and middle classes, the slipping housing market has begun to push housing prices toward — and in the case of La Boheme, below — the so-called “affordable” limits set by government programs.
Because of government assistance and land-use regulations, about 40 of the units in the project were designated “affordable” when it was built in 2006. That means their prices were, at the time, artificially lowered so that households earning under a certain income threshold could buy them and not spend more than 35 percent of their monthly income on housing costs.
In 2006, that formula spat out a price close to $200,000. But to try to compete in these market conditions, the builder has since had to lower the price even more.
Most of the market-rate units in this project once sold between $300,000 and $500,000. Then, the units considered affordable were priced more than 30 percent below the market-rate units. But now, with affordable units fending off competition from desperate house sellers on the resale side, the word affordable is still stamped on condos that are more expensive than their previously considered non-affordable, market-rate counterparts.
“There may have [once] been a $200,000 spread — but that spread is gone,” said Peter Armstrong, supervising project manager for the Housing Commission, of the difference between affordable and market-rate units. “They don’t have a competitive price advantage. But this dynamic is not unique to North Park or D.R. Horton.”
This is not the first time La Boheme has seen prices sink. In September, the builder auctioned nearly three dozen new units for discounts of about 30 to 50 percent from the original asking price. Then, some market-rate units sold less than the affordable ones were listed — about $200,000. The Housing Commission then asked D.R. Horton to lower the prices for the remaining affordable units, and they dropped the prices to $191,000, said Erika Rooks, spokeswoman for the Housing Commission, the government body that administers the sale of affordable units.
“The sales prices for affordable units are set based upon a formula that takes in a few variables and spits out a price, based upon assumptions that the people who can afford the unit will be able to get in at that price,” Armstrong said. “But the price that it spits out doesn’t necessarily mean that it’s an affordable unit in today’s market.”
The units left in this project are restricted to buyers earning less than or equal to 120 percent area’s median income. For San Diego in 2008, that level is $60,550 for a single person, $69,200 for two and $77,850 for a three-person household. Builders in some cases are required to build such units, in others they build them in exchange for the city’s approval to build more homes or taller buildings or for the city’s financial assistance.
While emphasizing there’s a widespread need for such government programs in San Diego’s high-cost housing market, advocates for affordable housing said they’re not losing sight of the fact that the market itself seems to be becoming affordable, at least now in limited cases like these, if not in a greater swath of the market to come.
In La Boheme, the $166,000-priced unit is a short sale, a condo on the market for less than the owner owes on the mortgage, said the seller’s agent, Norma Santacruz. Her client was one of the first buyers in the building, she said, and she bought for $300,000 in 2006.
Because the unit is distressed, some real estate agents in the neighborhood questioned whether its sale price would bring down the price of other units in the area.
“[Buyers] would probably think it’s maybe just a one-off kind of thing,” said Bill Vivian, a local real estate broker. “But is it the majority in the building? That’s what they’re looking for.”
Another agent, David Furlin, called the price an “attention-getter.”
Still, even at a time when distressed sales are creating new lows for comparable sales in neighborhoods, Santacruz said the listing price may end up flashier than the sales price. The price is low to catch attention, and they’re hoping it will be bid up by the time the unit closes.
“It’s worked very well for us,” Santacruz said. “We priced it so we’d have a lot of interest, and we came to that strategy because of the fact that these here are going for 180, and this is a used, this is a resale. We had to get their attention, and we have three offers that we’re working with.”
Ron Oster with Re/Max Associates said deciding between the low-priced short sale and the affordable units would be a tricky call for a first-time buyer.
On these affordable units, buyers can’t expect to profit when they need to sell. The price they pay is tied to a formula that will be recalculated at the time of the sale. The sales price will probably closely mirror the price today’s formula spits out. Here, historically, that’s a tradeoff buyers have clamored to make in order to get into homeownership at a price they can afford.
The lower-priced unit comes with none of those governmental restrictions. But short sales aren’t quick transactions; banks drag feet and make counteroffers and some real estate agents are actually steering their clients away from them. And so the frustration of a short sale may not be worth the $17,000 discount, even with the affordable units’ tight requirements on who qualifies to buy them, he said.
“You have headaches either way,” Oster said.