Califonia’s first-time buyers have been having a hard time in the past few years, not being able to compete in a steaming market. The home prices’ steep rise wasn’t followed by an equal rise in median income, and many people got priced out. Rents got higher than ever, which made it impossible to save up for the down payment.
California legislators recognized the issue and decided to make things right by issuing California Deam for All program, beginning in early 2023. This program was created after a surplus of $97,5 billion dollars in the State budget, and it is still a subject of negotiations, but the specifics have been shared with the public.
The program is allocating 1 billion dollars annually for 10 years. Each year around 7 700 first-time buyers will get a loan for their down payment. That loan would be interest-free, and the homebuyers will not pay it back until they sell their property. Essentially, the state will have a stake in their residence.
As with any investment, the State would face gains and losses, depending on the market. They are ready to give up to a 30% down payment, however, they are counting on first-time buyers to have at least 3% saved up. Ideally, they count on investing around 17% into each residence.
What they explained is quite simple: it is an investment. A first-time buyer buys a house for a median price of $786 000, the State loans them $134 000, and they pay $24 000 themselves. The rest they pay out with a mortgage and live their life without any worry about State’s loan.
Only upon selling the house, the homeowners will be requested to give back the initial $134 000, plus the 17% of the gain in home equity. In case the value didn’t go up, they are expected to pay off the amount they were given, and in case the value decreases - the State would take the 17% hit.
California Dream for All targets first-time buyers who belong to a group or a neighborhood, with a history of real estate discrimination. With a homeowning rate of only 54%, Californians are second least likely to own a home, only after New Yorkers. This problem is much bigger for minorities. The rate for homeowning Latinos is 44% and even less for African Americans, with a 37% homeowning rate.
This program is trying to erase the red lines, by helping minorities build generational wealth. However, it is not only the minorities that are targeted. Legislators are trying to enable help to a rising number of low-earning Californians, who are priced out of the market long ago, even before the pandemic-induced prices.
It is up to the State now to take on a role of a generous relative and give money for the down payment. The legislators who are negotiating with governor Gavin Newsom are expecting that the program will generate returns in 10 years, which will be enough to keep running organically.
The goal is to help people without it being a double edge sword. A huge influx of money to the market could help the rising prices get even higher, that’s why they decided to stick to $1 billion a year, over 10 years - instead of offering it all at once. Nevertheless, the consequence of this program will certainly be higher competition in the mortgage market.
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