With home prices significantly higher, particularly in the San Francisco Bay Area and coastal regions, fewer home buyers in the state could afford to buy a home during the second quarter of 2013, according to the latest state Realtor group report.
According to the California Association of Realtors Traditional Housing Affordability Index, the percentage of home buyers who could afford to purchase a median-priced, existing single-family home in the state dropped to 36 percent in the second quarter of 2013, down from 44 percent in first-quarter 2013 and from 51 percent in second-quarter 2012. This year's second quarter figure fell below 40 percent for the first time since the third quarter of 2008. The index measures the percentage of all households that can afford to purchase a median-priced, single-family home in California.
As of the second quarter of 2013, home buyers needed to earn a minimum annual income of $79,910 to qualify for the purchase of a $415,770 California median-priced, existing single-family home. At this income level, their monthly payment, including taxes and insurance on a 30-year fixed-rate loan, would be $2,000, assuming a 20 percent down payment and an effective composite interest rate of 3.64 percent. The effective composite interest rate in first-quarter 2013 was 3.55 percent and 2.82 percent in the second quarter of 2012.
This year's affordability level contrasts with the second quarter of last year, when the median home price was $316,490, and an annual income of $62,440 was needed to purchase a home at that price.
Nearly all regions of the state experienced sharp quarter-over-quarter declines in housing affordability, with Bay Area and coastal regions recording the greatest decreases in the index due to significantly higher home prices.
At an index of 71 percent, Madera County was the most affordable county of the state, while San Francisco and San Mateo counties tied for the least affordable at 17 percent.
In Santa Clara County, 24 percent of home buyers could afford to buy a median-priced single family home in second-quarter 2013, down significantly from 31 percent in the previous quarter and from 30 percent the same time last year. Home buyers would need a minimum annual income of $155,400 to qualify for the purchase of an $808,500 median-priced home. With a 20 percent down payment, their monthly payment, including taxes and insurance on a 30-year fixed-rate loan, would be $3,880.
"It's a stark difference from last year and more so, the year before," said Carolyn Miller, president of the Silicon Valley Association of Realtors. "The high demand for homes due to strong job growth in the area and the fact that the housing inventory has not been able to keep up with demand has led to home prices rising at a fast pace."
Miller is skeptical that the sky-high prices in California could lead to another housing bubble. "This area has always been a prime place to buy property. Sure, the boom in the tech industry has contributed a lot to the strength of our economy and rising home prices, but don't forget that we have excellent public schools and colleges and universities. Many buyers, including foreign buyers, want their kids to study here and instead of sending their kids to live in a dorm, they see the opportunity in purchasing a home as a good investment and 70 percent pay all cash."
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 email or call the SILVAR office at (408) 200-0100.