Promoting Home Ownership In California’s Cities

When it comes to home ownership, study after study confirms what civic leaders have know intuitively for a long time: communities prosper when residents own their homes. Recent findings have linked home ownership with increased civic engagement, higher voter turnout, reduced crime rates, better health, and higher educational achievement in children.

A recent survey of those in the market to buy a new home found that, across cultural demographics, the neighborhood surrounding a property is just as important as the house itself. Having healthy neighborhoods attracts buyers and those buyers become the bedrock of the community. This is not just about the American dream, it’s about building cities that can weather hard times.

Unfortunately, the collapse of the housing market in 2007 prompted many individuals to question the value of home ownership. Rampant foreclosures over the past decade have frightened potential buyers. According to the Census Bureau’s Current Population Survey/Housing Vacancy Survey (CPS/HVS), the homeownership rate nation-wide fell from 69 percent in 2004 to 65.4 percent for 2012 – the largest decline since the Great Depression.

With the many oscillations in the economy over the past years, home sales have fluctuated quite a bit, but we are now seeing the classic signs of a seller’s market: rising home prices, low home inventory, and multiple bids. This trend is expected to continue for the foreseeable future.
With the housing market now recovering, how do cities foster home ownership and all the benefits that it brings? Further, how do cities help home-buyers compete with investors and Wall Street firms in buying homes so that they become owners rather than renters?

In this market, low- and moderate-income homebuyers will find the biggest obstacle to homeownership continues to be the required investment or “cash to close” from the borrower’s own resources. Although many first-time homebuyers can qualify for a mortgage loan for as much as 97% of the home purchase price, they will need a minimum of 3% as a down payment and another 3-4% for related closing costs.

In April of 2013, the average home price in California was $353,900. Of course, this price varies considerably depending on specific location (it’s closer to $600,000 in San Francisco, and $450,000 in the Los Angles metro area), but as an average, buyers in California will need roughly $25,000 to take their first steps into home ownership. Cities that want to encourage homebuyers are exploring ways to help responsible buyers reduce the amount of up front cash required.

In addition to programs offering shared-equity, interest deductions, and tax breaks, many cities are now pursuing down payment assistance programs. For example, the new Advantage Down Payment Assistance Program, supported by the Independent Cities Finance Authority (ICFA), grants qualified applicants up to 4% in assistance towards the borrower’s cash to close required with a FHA or FNMA first mortgage loan. These funds can make all the difference for families in search of a home to call their own. That average $25,000 required at closing drops to about $10,000 under the Advantage program.

PrintAs a California Joint Powers Authority, ICFA has a long history of providing flexible and unique financing solutions to its 74 public agency members. Over many years ICFA has financed schools, public safety equipment, community hospitals, low- and moderate-income housing, and other projects. The new Advantage Down Payment Assistance Program is only available to ICFA member agencies, but joining ICFA as a public agency is as simple as completing the Associate Membership Agreement and passing a resolution.

By connecting residents with smart, reliable financing resources, government leaders will unlock the benefits of home ownership for millions of Californians.

ICFA is hosting a free webinar on the topic of down payment assistance on June 25th at 10am. This online seminar is geared toward municipal housing and finance directors, but is open to anyone interested in learning more about how to increase the number of assistance options available to California’s residents. For more information, please contact us.

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