The percentage of first-time buyers in California able to afford a median-priced home improved slightly compared with the most recent quarter - from 23 percent in the second quarter of this year to 24 percent in the third quarter. However, when compared with the same period a year ago, affordability for first-time buyers fell four percentage points, from 28 percent in the third quarter of 2005, according to a report released by the California Association of Realtors® (C.A.R.).
C.A.R.'s First-time Buyer Housing Affordability Index (FTB-HAI) measures the percentage of first-time buyer households that can afford to purchase a home in California. The Index is the most fundamental measure of housing well-being for first-time buyers in the state.
The minimum household income first-time buyers needed to purchase a home at $478,710 in California in the third quarter of 2006 was $98,890, based on an adjustable interest rate of 6.58 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 $3,300 for the third quarter of 2006.
Affordability for first-time home buyers in Santa Clara County mirrored that of the state, improving slightly compared with last quarter, from 26 percent in the second quarter of this year to 27 percent in the third quarter. In the same period a year ago, affordability stood at 33 percent. In the first quarter of this year, affordability for first-time home buyers was at 30 percent.
At 39 percent, the High Desert region was the most affordable C.A.R. region in the state, followed by the Sacramento region at 38 percent. Santa Barbara was the least affordable region in the state at 14 percent, followed by Monterey at 17 percent.
Rising interest rates continued to negatively impact affordability. In the third quarter of 2005, the effective one-year adjustable mortgage rate, including fees and charges, was 5.57 percent, compared with 6.58 percent this year. The increase in the median price of a first-time buyer home also impacted the decline in affordability. In the third quarter of 2005, the median price for a first-time buyer was $462,880.
Palo Alto Coldwell Banker Realtor Leannah Hunt said California's housing market is healthy and the demand for homes, especially in the South Bay area, continued to be strong, but affordability is a big issue.
"Our economy overall is doing well," explained Hunt, who is also a board director and 2007 president-elect of the Silicon Valley Association of Realtors® (SILVAR). "There are many people who want to live here, the schools continue to be a driving force, but the problem is many people cannot qualify for the average price of a home and this continues to be an issue."
According to a recent C.A.R. report, the cost of financing a home will remain prohibitive for many households in California in the wake of the Office of Federal Housing Enterprise Oversight (OFHEO) conforming loan limits for 2007. The maximum 2007 conforming loan limit for single-family mortgages will remain at $417,000, unchanged from the 2006 level established last year. The conforming loan limit determines the maximum size of a mortgage that Fannie Mae and Freddie Mac can buy or guarantee.
"By leaving the conforming loan limit unchanged, home buyers in California are being shortchanged," said C.A.R. President Colleen Badagliacco. "The median price of a home in California exceeds the national median by 79 percent, yet California is not recognized by OFHEO as a 'high-cost' state. Alaska, Hawaii, Guam and the U.S. Virgin Islands are recognized by OFHEO as 'high-cost' areas. Surely California deserves the same consideration. California has the third highest home price in the nation, compared with Hawaii at seventh, and Alaska, which ranks 39th in terms of median home price.
"California has the second lowest rate of homeownership in the nation, where even the most 'affordable' parts of the state have home prices in excess of $300,000," she said. "Non-conforming or jumbo loans typically carry a higher mortgage interest rate than a conforming loan, increasing the monthly payment and negatively impacting affordability for households in California."
Hunt said affordability will continue to be a problem in California until cities address the issue.
"As Realtors, we want to encourage various municipalities to build their affordable housing allotments," said Hunt. "They need to use various tools which would enable them to live up to their affordable housing element commitment so people who are providing services in these cities can live there."
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.