California's housing market is recovering nicely, but it also means with prices rising, fewer home buyers, especially first-time home buyers, can afford to buy a median priced home. Lower inventory, high demand, rising interest rates have significantly reduced housing affordability in the state.
The California Association of REALTORS® (C.A.R.) reports housing affordability fell for the sixth consecutive quarter, after reaching an all-time high in the spring of 2012. The percentage of home buyers who could afford to purchase a median-priced, existing single-family home in California dropped to 32 percent in the third quarter of 2013, down from 36 percent in first-quarter 2013 and from 49 percent in third-quarter 2012, according to C.A.R.'s Traditional Housing Affordability Index (HAI). C.A.R.'s HAI measures the percentage of all households that can afford to purchase a median-priced, single-family home in the state.
Home buyers needed to earn a minimum annual income of $89,170 to qualify for the purchase of a $433,940 statewide median-priced, existing single-family home in the third quarter of 2013. The monthly payment, including taxes and insurance on a 30-year fixed-rate loan, would be $2,230, assuming a 20 percent down payment and an effective composite interest rate of 4.36 percent.
The composite interest rate was 3.72 percent in the third quarter of 2012. The median home price was $339,930 in third-quarter 2012, and an annual income of $65,828 was needed to purchase a home at that price.
California housing affordability hit a record high of 56 percent in first quarter of 2012. The third quarter 2013 figure fell below 35 percent for the first time since the third quarter of 2008.
C.A.R. reports nearly every county experienced a double-digit decline in affordability when compared to last year. Sacramento, Monterey, and Sonoma counties experienced the largest year-to-year declines. At an index of 64 percent, San Bernardino County was the most affordable county of the state, while San Mateo County was the least affordable at 15 percent.
Only 21 percent of Santa Clara County home buyers could afford to purchase a median-priced, single-family home in the third quarter of 2013, down from 32 percent in third-quarter 2012. Home buyers needed to earn a minimum annual income of $165,420 to qualify for the purchase an $805,000 median-priced, single-family home. Their monthly payment, including taxes and insurance on a 30-year fixed-rate loan, would be $4,140, assuming a 20 percent down payment and an effective composite interest rate of 4.36 percent. The interest rate in second-quarter 2013 was 3.64 percent and 3.72 percent in third-quarter 2012.
Economic growth has been good for the region, leading to a high demand for housing, despite the rise in interest rates, said Carolyn Miller, president of the Silicon Valley Association of REALTORS®. "With Silicon Valley's economic recovery, there is no doubt that it has become more difficult for home buyers, especially first-time home buyers, to purchase a home in the region. Many businesses are expanding their labor force and unless more inventory and new home construction ease the shortage of housing, home prices are expected to continue rising next year," said Miller.
MLSListings Inc., the multiple listing service which serves the five counties of San Mateo, Santa Clara, San Benito, Santa Cruz and Monterey, reports inventory is still low in the region, down anywhere from 2 percent in Santa Cruz County to 11 percent in Santa Clara County.
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.