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REALTOR®: Conditions Favor Buyers, Just Need Confidence

Wednesday, March 4, 2009

Favorable conditions for home buyers appear to be aligning, except for consumer confidence, which continues to waver somewhat due to negative news about the economy. Yet housing affordability conditions have improved for buyers nationwide and even here, in Silicon Valley.

The good news for home buyers is interest rates are low, the median price has dropped, and the first-time homebuyer tax credit has increased to $8,000 and no longer requires repayment.

The housing affordability level in the state of California too, has improved, according to Julia Truesdale Keady, president of the Silicon Valley Association of REALTORS®. "Affordability has improved significantly. Now, if we could just beef up consumer confidence," said Keady said.

The California Association of REALTORS® reported the percentage of households that could afford to buy an entry-level home in California stood at 59 percent in the fourth quarter of 2008, compared with 33 percent for the same period a year ago. The minimum household income needed to purchase an entry-level home at $248,030 in California in the fourth quarter of 2008 was $48,900, based on an adjustable interest rate of 6.02 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 $1,630 for the fourth quarter of 2008.

At $48,900, the minimum qualifying income was 42 percent lower than a year earlier when households needed $83,700 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.

In Santa Clara County affordability increased to 49 percent during the fourth quarter of 2008, from 24 percent the previous year. The minimum household income needed to purchase an entry-level home at $446,250 in California in the fourth quarter of 2008 was $87,900, based on an adjustable interest rate of 6.02 percent and assuming a 10 percent down payment. The monthly payment including taxes and insurance was $2,930 for the fourth quarter of 2008.

Keady said serious home buyers sitting on the sidelines should be encouraged by the low interest rates, the drop in home prices, and the $8,000 first-time buyer tax credit. "I would urge serious buyers who have good credit and are looking to buy a home for the long-term, to consider these favorable conditions, especially the  tax credit, which  sunsets in December," said Keady, who is a REALTOR® with Alain Pinel Realtors in Palo Alto.

Affordability has also improved nationwide. The National Association of REALTORS® Housing Affordability Index rose 13.6 percent in January to 166.8, a new record high. The HAI indicates a median-income family, earning $59,800, could afford a home costing $283,400 in January with a 20 percent down payment, assuming 25 percent of gross income is devoted to mortgage principal and interest; affordability conditions for first-time buyers with the same income and small down payments are roughly 80 percent of that amount. A year ago, the typical family could afford a home costing $263,300.

NAR President Charles McMillan said it is ironic with the weak housing market that affordability conditions have improved dramatically. "Housing affordability is at a record high – the buying power of a typical family has risen significantly," he said. "With the drop in interest rates, a median-income family can afford a home costing $20,000 more than a year ago for the same monthly mortgage payment. With the strong housing stimulus, we are hopeful inventory will get trimmed and which will help prices stabilize in many areas by the end of this year."

Analysts contend once the economy recovers, inflation will set in and interest rates will rise. "A slight bump up in interest rates will effectively raise the cost of buying a home in the hundreds or thousands of dollars, and in some cases over the length of homeownership," Keady 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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