Housing Affordability Increases Throughout California Amid Housing Downturn, CBIA Announces


California however is still home to half of the top ten least affordable markets

SACRAMENTO, CA – November 18, 2008 – (RealEstateRama) — Housing affordability continued to increase during the third quarter throughout most of the state as a result of sharp price reductions fueled by waves of foreclosures, yet California is still home to five of the 10 least affordable markets in the nation, the California Building Industry Association said today.

The quarterly National Association of Home Builders/Wells Fargo Housing Opportunity Index found that homes were more affordable in 27 of the state’s 28 metro areas included in the report, but because of falling home prices across the nation, California still has more metro areas scoring the lowest in affordability than any other state. In addition, today’s relatively high affordability levels are likely to be a short-lived phenomenon after the market correction is completed as underlying demographic trends point to rising prices in the future once the large supply of foreclosed homes is sold.

Robert Rivinius, CBIA’s President and CEO, said the continued increase in affordability in most areas of the state is welcome news for prospective homebuyers looking to purchase a home in the near future, but urged policy makers to continue looking at ways to address the high cost of housing in California by streamlining the homebuilding process and deferring or lowering development impact fees.

“The increase in affordability is great news for people who are looking and who qualify to buy a home in the current market, and we definitely encourage those people to do so and take advantage of the low prices while they last,” Rivinius said. “However, we must continue to look to the future and make sure that California housing continues to be more affordable on a long-term basis.

“It’s estimated by the California Department of Housing and Community Development that California needs to be building around 230,000 units per year to keep up with population growth, but we wont even build a third of that number this year. Basic supply and demand economics tells us that this will eventually put upward pressure on prices. Policy makers need to look at ways to get people out there to buy up the unsold inventory so that homebuilders can continue to build new homes in hopes of meeting the demand once the market reaches equilibrium, otherwise we could again be facing a serious housing shortage, which would cause today’s affordability levels to drop significantly.”

Rivinius said that CBIA is pushing Congress to increase the amount of the temporary homebuyer tax credit of $7,500 enacted earlier this year and to make it a true credit that doesn’t have to be paid back in hopes of encouraging more buyers to snap up the unsold inventory flooding the market. He also said the Association will continue to request local policy makers to defer or lower development impact fees so that builders will be able to get projects off the ground more quickly in hopes of avoiding a housing shortage once the market corrects itself.

During the third quarter of 2008, five of the 10 least-affordable metro areas in the nation were located in California. New York City continued to hold the title of the nation’s least affordable market with just 10.6 percent of the homes sold affordable to a median income family, down from 11.4 percent in the second quarter.

San Luis Obispo County became California’s least-affordable metro area, and second in the nation, and was the only market to show a decrease in affordability with just 13.4 percent of the homes sold affordable to a median-income family, down from 14.7 percent in the second quarter. San Francisco, San Mateo and Marin counties came in third (16.6 percent), followed by the Nassau-Suffolk metro area in New York (19.2 percent) and Los Angeles County (20.7 percent).

Merced County overtook the Sacramento region to become California’s most affordable market with 60.7 percent affordability, up from 48.6 percent in the second quarter. The Sacramento region and Stanislaus County were the second- and third most-affordable metro areas in California with 59.9 percent and 59.7 percent affordability, respectively.

On a statewide basis, the HOI found that a median-income family could have afforded 44 percent of the new and existing homes that were sold during the third quarter, up from 36.8 percent in the second quarter.

Nationwide, 56.1 percent of new and existing homes sold in the third quarter were affordable to families earning the national median income, up from 55 percent in the second quarter. Springfield, Ohio, became the nation’s most-affordable housing market with an affordability ranking of 92.9 percent, followed by Wheeling, West Virginia-Ohio, with a ranking of 92.3 percent.


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

Michael Castillo
Communications Specialist
(916) 443-7933 ext. 346
mcastillo (at) cbia (dot) org


The California Building Industry Association (CBIA) is a statewide trade association representing thousands of homebuilders, remodelers, subcontractors, architects, engineers, designers, and other industry professionals.


California Building Industry Association
1215 K Street, Suite 1200
Sacramento, CA 95814
Phone: (916) 443-7933
Fax: (916) 443-1960

Michael Castillo
Communications Specialist
(916) 443-7933 ext. 346

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