Friday, April 24, 2009

Housing Affordability in CA Reaches Record High

The California Association of Realtors' (CAR) Traditional Housing Affordability Index (HAI) measures the percentage of households that can afford to purchase the median priced home in the state and regions of California based on traditional assumptions (methodology here).

The chart above shows the California Housing Affordability Index over the entire history of the series, quarterly from 1988:Q1 through 2008:Q4 (data
here and here). In the fourth quarter of 2008, the index reached the highest level in its history, 43%, which means that 43% of California households can afford to purchase the median priced home with a 20% down payment and financing at the national effective average mortgage rate.

In some parts of California, the Housing Affordability Index is as high as 61% (Sacramento), 65% (High Desert), and 56% (Riverside/San Bernardino); and in some areas as low as 17% (San Francisco and Contra Costa) and 19% (Marin).

With falling mortgage rates and falling median home prices, the CAR Housing Affordability Index will likely continue to rise in 2009, which will play a significant role in the recovery process for the California real estate market.


At 4/24/2009 8:59 AM, Anonymous Anonymous said...

"43% of California households can afford to purchase the median priced home with a 20% down payment"

I think most of those 43% of California households don't have any savings to pay a 20% down payment.

And why was it when houses were being purchased the most (2005-2006), the affordablility index was near its lowest? I did not see any real estate agents at that time going around saying, "Houses are the least affordable now, so you should wait until they are more affordable to buy!"

At 4/24/2009 9:18 AM, Anonymous Anonymous said...

Fellow Anonymous,

Answer: herd mentality.

People bought homes in 2005-06 for the same reason people bought tech stocks in 1999-2000...they thought prices would never stop going up.

Real estate and stocks are generally pretty cheap right now. But no one wants to buy either one because people now think prices will never stop going down.

At 4/24/2009 10:31 AM, Blogger QT said...

While housing may be more affordable, there is still a problem with mortgages with principles in excess of the current market value of homea. Many states have zero default so there is little incentive for the homeowner to continue to pay the mortgage and there is insufficient collaterol for a bank to renew the mortgage.

The problem with excessive principle has not been resolved by lowering interest rates although home sales will eventually stabilize prices. Prices will likely take several years to recover. Yale economists discussing the present financial crisis offer some interesting insights.

At 4/24/2009 4:10 PM, Blogger Richard Rider, Chair, San Diego Tax Fighters said...

This past week we have reports of another surge in foreclosures. Two factors I see in play:

1. Lenders are catching up to the delinquency problem. They were overrun for awhile, and then there was a government-imposed foreclosure moratorium, but that's been rescinded. Lenders have now geared up to get on with business.

2. There's a second wave of foreclosures coming from another pair of shaky loan categories -- Alt A and option ARM loans. Some think the resulting mortgage defaults will be significantly higer than the infamous sub-prime loans.

At 4/24/2009 7:41 PM, Anonymous Ralph Short said...

I was 33 years old when I bought my first house. I had to pay 20% down in 1977. As far as I am concerned everyone else should have to do the same.

Anonymous 8:59, for your information 2005 and 2006 are not the "be all end all" of stats. The fact is 20% down was the most common down payment for generations when buying a home. What is your historical point beyond the recent few years?

At 4/28/2009 3:58 AM, Anonymous Anonymous said...

Yeah but this is the exact same BS that caused the bubble that just popped. With rates down here, EVERYTHING looks affordable.
But when rates go back up, then we have the exact same problem again.
When rates are on such a yo-yo, this is not a solution.
It is the exact same problem and do you think it's going to be any different this time around?
Nasdaq crash 2000.
Housing crash 2006 to today.
Anyone learned the lesson yet?


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