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US housing boom gone, but prices still out of reach in California

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The beige stucco townhouses and palm-lined cul-de-sacs of San Diego County exude a quiet tranquility, but that demeanor hides a difficult reality: Even after a sharp housing slowdown, cities in California are still America's least affordable places to live.

This means that California, which helped lead a nationwide real estate boom, could face more downward pressure on home prices.

Statewide, just 25 percent of households can afford an entry-level home, according to an index released this month by the California Association of Realtors. That's far below the national average of 61 percent who can afford to purchase a home.

Forecasters don't expect an outright plunge in California prices. With those palm trees and the Pacific Ocean beckoning, the Golden State appears sure to retain gilt-edged home values.

But if there's a floor under home prices in the nation's most populous state, there is also a ceiling.

"Home prices have gotten out of balance with incomes," says Mark Milner, a real estate analyst at PMI Mortgage Insurance in Walnut Creek, Calif. "Over time, those have to come back in balance."

The figures are eyepopping. First-time homebuyers paid a median price of $477,400 in California last year – 2-1/2 times the US median, according to the California Association of Realtors. The median entry-level condo in California sold for $360,160.

What happens here will be important, not just because California is home to nearly 1 in 8 Americans. It will help set the tone for the nation's housing market in the next year or two.

Moreover, the state's struggle over affordability represents, in extreme form, a national trend. Across the US, rents and home prices have risen faster than incomes over the past seven years.


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