updated 8/18/2005 4:12:06 AM ET 2005-08-18T08:12:06

Soaring home prices in California haven’t deterred first-time buyers from entering the market in record numbers, and many of them are going to extraordinary lengths to dive in, according to a study released Thursday.

Californians are increasingly sinking more than half their incomes into mortgage payments, taking on enormous debt, forgoing down payments and signing interest-only or adjustable-rate mortgages, according to the study by the Public Policy Institute of California.

Although California still lags behind most states in terms of home ownership, the buying frenzy has lifted it to its highest level — 59 percent — since 1960, the study found.

The statewide median home price in July was $451,000, with median prices in San Francisco hitting $606,000 and in Southern California $469,000, according to real estate research firm DataQuick Information Systems.

Many first-time buyers are low- and middle-income families or young investors who wouldn’t be able to afford such expensive homes without bucking traditional financing guidelines, said Hans Johnson, lead author of the study.

“I thought what we would find was that it was only people who had equity or very high incomes who were getting into the market,” Johnson said. “But that’s simply not true,” said Johnson.

Risky tactics
While many families are able to afford a home by compromising on size or by buying inland instead of on the coast, a growing number have resorted to risky financial tactics that could pay off if the housing market continues to expand — or backfire if it slows, he said.

More than half of Californians who purchased a home in the past two years ignored federal guidelines and spent more than 30 percent of their income on housing. One in five spent more than 50 percent of their income, the study found.

Seasoned real estate agents say such financial risks were unheard of just a few years ago, but the superheated California market has lured a glut of first-time investors hoping to get rich quick.

‘Up, up, up’
“You’re a first-time buyer and all you know is that for the past five to 10 years anyone who’s bought a piece of real estate has made money. All they’ve seen is the market go up, up, up,” said Stephanie Vitacco, a Coldwell Banker real estate agent in Los Angeles’ San Fernando Valley.

The median household income of those who have bought a house in the past two years was $68,000, the study found. Nearly 13 percent of recent buyers made between $25,000 and $40,000, while nearly 19 percent made between $40,000 and $60,000 a year.

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