Higher home prices due to tight inventory of homes for sale and high demand dragged down California's housing affordability in the second quarter of 2017. The California Association of Realtors reports the income required to purchase a home has doubled in five years.
According to the state Realtor group's Traditional Housing Affordability Index, the percentage of homebuyers who could afford to purchase a median-priced, existing single-family home in California in second-quarter 2017 fell to 29 percent from 32 percent in the first quarter of 2017. The index was down from 31 percent in the same period a year ago.
The index, which measures the percentage of all households that can afford to purchase a median-priced, single-family home in the state, is at its lowest since third-quarter 2015. The statewide housing affordability index peaked at 56 percent in the first quarter of 2012.
California homebuyers needed a minimum annual income of $110,890 to qualify for the purchase of a $553,260 statewide median-priced, single-family home in the second quarter of 2017. Their monthly payment, including taxes and insurance on a 30-year, fixed-rate loan, would be $2,770, assuming a 20 percent down payment and an interest rate of 4.09 percent.
Condominiums and townhomes also were less affordable in second-quarter 2017 compared to the previous quarter. According to C.A.R, 38 percent of California households could qualify to purchase a $443,400 median-priced condominium/townhome in the second quarter of 2017, compared with 40 percent of households in the first quarter, when the median price of a condo/townhome was $414,840.
Home prices have nearly doubled since affordability reached its highest level five years ago and homebuyers now need twice the income to purchase a median-priced home. In the first quarter of 2012, buyers statewide needed a minimum annual income of $56,320 to purchase a home that was priced $279,190.
The San Francisco Bay Area continues to be the least affordable region to purchase a home in the state. In Santa Clara County, 17 percent of homebuyers could afford to buy a $1,183,440 median-priced, single-family home in second-quarter 2017, compared with 19 percent in the previous quarter and in second-quarter 2016. Homebuyers needed a minimum annual income of $237,210 to qualify for the purchase. Their monthly payment, including taxes and insurance on a 30-year, fixed-rate loan, would be $5,930.
Denise Welsh, president of the Silicon Valley Association of Realtors, said the numbers are daunting for Bay Area homebuyers. "Just five years ago, Santa Clara County homebuyers needed a minimum annual income of $130,220 to qualify for the purchase of a $660,000 median-priced single-family home. Compare that to the current minimum income of $237,210 they need to purchase a median-priced home today," said Welsh. "For many homebuyers, especially our millennials, there is also the challenge of coming up with the down payment."
Rents, too, are becoming unaffordable. Though there are indications that rent growth has slowed, it is still a tight rental market. "Rents have softened, but they are still quite high. Median rents in Silicon Valley are less affordable compared to other places," said Welsh.
According to a report from Apartment List, median rent prices in the Bay Area are less affordable compared to other cities nationwide. The average rent in San Francisco is $3,060 and $2,580 in San Jose, way above the national average rent of $1,160.
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.
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