California Housing Affordability Continues Slide in Fourth Quarter, CBIA Announces
California still home to over half of the top 20 least affordable markets
SACRAMENTO, CA – February 17, 2010 – (RealEstateRama) — Housing affordability in California continued to fall throughout most of the state during the fourth quarter of 2009, the California Building Industry Association said today.
The quarterly National Association of Home Builders/Wells Fargo Housing Opportunity Index found that homes were less affordable in 22 of the state’s 28 metro areas included in the report.
On a statewide basis, the HOI found that a family earning the median-income could have afforded 56.4 percent of the new and existing homes that were sold during the fourth quarter, down from 59.1 percent in the third quarter.
Liz Snow, CBIA’s President and CEO, said that affordability levels are likely to continue dropping as housing prices slowly stabilize.
“Due to a number of factors, including an increasing population and escalating restrictions on land-use and homebuilding, California has always been one of the least affordable states in the country and continues to be even in the midst of a housing downturn,” said Snow. “Now is the time to take advantage of low prices and interest rates as we’re already seeing declines in affordability throughout most of the state and it’s highly likely that affordability will continue to drop as the statewide housing market begins to stabilize.”
Snow added that a balance between supply and demand must be met in order to keep housing more affordable in the long-run.
“It’s estimated that California needs to be building around 220,000 units per year to keep up with population growth, but we didn’t even come close to that number with the last two years of production combined,” said Snow. “Lawmakers have a unique opportunity to assist the housing recovery effort with sound policy that appropriately balances supply and demand in the form of Governor Schwarzenegger’s homebuyer tax credit proposal.”
Snow noted that the Governor’s current tax credit proposal contains a credit for existing homes, which will help with clearing out inventory, and a credit for new homes which will help with new-home production and job creation.
“Rather than waiting for pent up demand to become so overwhelming and result in huge price increases that we’ve seen in the past, we should be gradually building more homes now so we can be ready for the demand and help keep prices more affordable,” said Snow. “Not only will the tax credit proposal help to curb an imbalance in supply and demand, it will help put thousands of Californians back to work and help jumpstart a recovery in our overall economy.”
San Francisco, San Mateo and Marin counties once again claimed the distinction of California’s least-affordable metro area, and second in the nation, with just 22.3 percent of the homes sold being affordable to a family earning the median income, down from 23.6 percent in the third quarter. San Luis Obispo County came in third (32.1 percent), followed by Honolulu, Hawaii (33.8 percent) and Orange County (34.5 percent). The New York City metro area continued to hold the title of the nation’s least affordable market for the seventh quarter in a row (19.7 percent).
Stanislaus County held onto the title of California’s most affordable market with 83.9 percent affordability, down from 84.5 percent in the third quarter. Merced County and Solano County were the second and third most-affordable metro areas in California with 83.4 percent and 78.7 percent affordability, respectively.
Nationwide, 70.8 percent of new and existing homes sold in the fourth quarter were affordable to families earning the national median income, up slightly from 70.1 percent in the third quarter. Kokomo, Ind., retained the title as the nation’s most-affordable housing market with an affordability ranking of 98 percent, followed by Monroe, Mich., with a ranking of 97.1 percent.
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How the HOI is calculated
For income, NAHB uses the annual median family income estimates for metropolitan areas published by the Department of Housing and Urban Development. NAHB assumes that a family can afford to spend 28 percent of its gross income on housing; this is a conventional assumption in the lending industry. That share of median income is then divided by twelve to arrive at a monthly figure.
On the cost side, NAHB receives every month a CD of sales transaction records from First American Real Estate Solutions (formerly, TRW). The data include information on state, county, date of sale, and sales price of homes sold. The monthly principal and interest that an owner would pay is based on the assumption of a 30-year fixed-rate mortgage, with a loan for 90 percent of the sales price (i.e., 10 percent down-payment). The interest rate is a weighted average of fixed and adjustable rates during that quarter, as reported by the Federal Housing Finance Board. In addition to principal and interest, cost also includes estimated property taxes and property insurance for that home. This is based on metropolitan estimates of tax and insurance rates from the 2000 Decennial Census, as estimated by NAHB from the Census Bureau’s Public Use Microdata Sample (PUMS). Mortgage insurance is not currently a component of the HOI.
More information about the HOI, including historical tables for communities nationwide, can be obtained at http://www.nahb.org/page.aspx/category/sectionID=135. Questions about the methodology should be directed to Gopal Ahluwalia (202-266-8480) or Rose Quint (202-266-8527) in NAHB’s Research Department.
The California Building Industry Association is a statewide trade association representing thousands of homebuilders, remodelers, subcontractors, architects, engineers, designers, and other industry professionals. More information is available on the Association’s Web site, www.cbia.org.
Media Contact:
Michael Castillo
Communications Manager
(916) 443-7933 ext. 346
mcastillo (at) cbia (dot) org
