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REALTOR®: Entry-level Housing Affordability More than Doubles in Third Quarter

Tuesday, November 25, 2008

A report released last week by the California Association of REALTORS® (C.A.R.) announced the percentage of households that could afford to buy an entry-level home in California stood at 53 percent in the third quarter of 2008, compared with 24 percent for the same period a year ago.

C.A.R.'s First Time Buyer Housing Affordability Index (FTB-HAI) is the most fundamental measure of housing well-being for first-time buyers in the state. The minimum household income needed to purchase an entry-level home at $287,760 in California in the third quarter of 2008 was $56,100, based on an adjustable interest rate of 5.91 percent and assuming a 10 percent down payment. First-time buyers typically purchase a home equal to 85 percent of the prevailing median price. The monthly payment including taxes and insurance was $1,870 for the third quarter of 2008.

At $56,100, the minimum qualifying income was 44 percent lower than a year earlier when households needed $100,500 to qualify for a loan on an entry-level home. Recent decreases in home prices and mortgage rates have brought affordability into better alignment with income levels of the typical California households, where the median household income is $59,160.

The First-Time Buyer Housing Affordability Index also rose five percentage points in the third quarter of this year compared to the second quarter of 2008, due to an 11.9 percent decrease in the entry-level median home price.

In Santa Clara County, the affordability index rose to 39 percent, up six percentage points from the second quarter of 2008 and up 18 percentage points from the same period last year. The minimum household income needed to purchase an entry-level home at $552,500 in Santa Clara County in the third quarter of 2008 was $107,700. The monthly payment including taxes and insurance was $3,590 for the third quarter of 2008.
In the third quarter of 2007, the minimum household income needed to purchase an entry-level-home at $724,630 in Santa Clara County was $149,437. The monthly payment including taxes and insurance was $4,981.

The affordability index has improved due to a drop in home prices. Distressed sales are making up a large percentage of the sales transactions and the discounted prices of these homes are pulling the median price down, according to REALTOR® officials. The increase in the conforming loan limit has also helped to improve affordability in high cost areas like Silicon Valley, said Leannah Hunt, president of the Silicon Valley Association of REALTORS®.

For 2008, the loan limits are 125 percent of the area median house price, up to $729,750, but not less than $417,000, but starting January 2009, the limits will be 115 percent of area median, up to $625,500, but not less than $417,000. Hunt said the National Association of REALTORS® is urging Congress to act during a lame-duck session to make the $729,750 conforming loan limit permanent.

"Making the conforming loan limit of $729,500 permanent would be a tremendous incentive to help people continue to be able to purchase homes," Hunt said.


The Silicon Valley Association of REALTORS® (SILVAR) is a professional trade organization representing over 4,000 REALTORS® and Affiliate members engaged in the real estate business on the Peninsula and in the South Bay. SILVAR promotes the highest ethical standards of real estate practice, serves as an advocate for homeownership and homeowners, and represents the interests of property owners in Silicon Valley.

The term "REALTOR®" is a registered collective membership mark which identifies a real estate professional who is a member of the National Association of REALTORS® and who subscribes to its strict Code of Ethics.

Variations of this article have appeared in local area newspapers.

For further information, please contact Rose Meily at SILVAR Public Affairs, email , or phone (408) 200-0109.

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