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Ed Fuller: California Housing Affordability Stabilizes as Home Price Increases Slow

As home price gains eased toward the end of 2013, California’s housing affordability held steady in the fourth quarter of 2013 from the previous quarter, following six consecutive quarters of declines, the California Association of Realtors reported.

Ed Fuller
Ed Fuller

The percentage of homebuyers who could afford to purchase a median-priced, existing single-family home in California was unchanged from the third quarter of 2013 at 32 percent, but was down from 48 percent in fourth-quarter 2012, according to the association's Traditional Housing Affordability Index (HAI).

While the California homebuyers had a window of opportunity to make very affordable home purchase from 2009 (Q1 HAI at 56 percent) through early 2013 (Q1 HAI at 44 percent), 32 percent is the long-run average for California’s HAI and nothing to get alarmed about.

The association's HAI measures the percentage of all households that can afford to purchase a median-priced, single-family home in California. Homebuyers needed to earn a minimum annual income of $89,240 to qualify for the purchase of a $431,510 statewide median-priced, existing single-family home in the fourth quarter of 2013.

The monthly payment, including taxes and insurance on a 30-year fixed-rate loan, would be $2,230, assuming a 20 percent down payment and an effective composite interest rate of 4.43 percent. The effective composite interest rate in third-quarter 2013 was 4.36 percent and 3.5 percent in the fourth quarter of 2012. The median home price was $352,450 in fourth-quarter 2012, and an annual income of $66,860 was needed to purchase a home at that price.

California housing affordability hit a record high of 56 percent in the first quarter of 2012 but has steadily declined since then, as a lack of housing supply and high demand drove up home prices and, along with increasing interest rates, significantly reduced affordability.

At the county level, housing affordability was mixed, with affordability mostly improving or unchanged in most counties in the San Francisco Bay Area, except Sonoma County, which decreased. In Southern California, Riverside and San Bernardino counties experienced a drop in affordability as home prices have recovered significantly. At an index of 67 percent, Madera County was the most affordable county of the state, while San Mateo County was the least affordable at 16 percent. Santa Barbara County (including the north) saw its HAI decrease from 27 percent in Q4 2012 to 18 percent in Q4 2013.

The index provides a snapshot overview that may not accurately reflect the well-being of the state's households. True, if all households in the state were to enter the homebuying market today, only 32 percent of them would be able to purchase the median-priced home. But the vast majority of homeowners have already made their purchase. Almost by definition, they afforded it when they bought, and, as their costs were fixed at that time, are able to continue affording it, no matter how much more expensive it may be to a new buyer.

One thing that nearly every housing expert can agree on is that California needs more entry-level homeownership opportunities — along with water!

Ed Fuller is a real estate broker with San Roque Realty Inc. and president of the Santa Barbara Association of Realtors. Contact him at [email protected] or 805.687.1551. The opinions expressed are his own.

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