California First Time Home Buyer Affordability Surges in First Quarter

LOS ANGELES (May 14) -- The percentage of households that could afford to buy an entry-level home in California stood at 69% in the first quarter of 2009, compared with 46% for the same period a year ago (see chart above), according to a report released today by the CALIFORNIA ASSOCIATION OF REALTORS (C.A.R.).

C.A.R.’s First Time Buyer Housing Affordability Index (FTB-HAI) measures the percentage of households that can afford to purchase an entry-level home in California. The Index is the most fundamental measure of housing well-being for first-time buyers in the state.

The minimum household income needed to purchase an entry-level home at $213,040 in California in the first quarter of 2009 was $38,090, based on an adjustable interest rate of 4.96% percent and assuming a 10% down payment. First-time buyers typically purchase a home equal to 85% of the prevailing median price. The monthly payment including taxes and insurance was $1,270 for the first quarter of 2009.

From lows of 26% in both 2006:Q2 and 2007:Q2, the FTB-HAI has increased by 43 percent to 69% in the first quarter of 2009, the highest first-time buyer housing affordability in the history of the index. Stated differently, only about 1 in 4 California households could afford an entry-level home in 2007, and today almost 7 out of 10 households can afford an entry-level home.

Comments

[swalter:]

Mark- has it ever occurred to you that Kudlow is an idiot; constant cheerleading is not going to change reality or stop the deleveraging process. And while affordability is up, availability is way down; haven't you heard that they have stopped giving loans at 125% LTVs.

May 15 08:56 AM

[John Lounsbury:]

Prof. Perry - - -

Your graph should go back to at least 1990 (1980 would be better) to show historical affordability indexes. You have just shown the abnormal recent history.

May 15 10:47 AM

[mikebrah:]

Plus, foreclosures are skewing this data. If people can only afford a house during a foreclosure epidemic, that is not a positive indicator.

In addition, it means that prices have to stay at their current levels or continue to get lower for this "affordability index" to stay at these recent high levels.

MM

May 15 11:04 AM

[HardwoodFlo...:]

MikeBrah- you are right on. I've been saying how useless this data point. It's really an iritating reference propigated for all the wrong reasons.

May 15 12:59 PM

[ain't no fo...:]

"I've been saying how useless this data point. It's really an iritating reference propigated for all the wrong reasons."

You've just perfectly described Mr. Perry's modus operandi.

But he's a great contrarian indicator anyway!

May 15 01:07 PM

[jeandit75:]

No credibility Perry

May 15 04:02 PM

[Fighting Yoda:]

- Don't trust the data from realtors
- California has much higher unemployment rate than rest of the country
- Buyer sentiment is very low - with home prices falling, and unemployment rising

California home prices are still way higher than the national median prices - the salaries are not higher, plus taxes and cost of living is higher - how does home buying become more affordable - the bubble is over. Lower than '08 does not make it affordable.

May 15 08:12 PM

[Can'tSpotAB...:]

Pollyanna Perry strikes again!

May 16 06:58 AM

[GoldMoney:]

What's the housing affordability index telling you in Michigan? Those $12,000 houses in Detroit must be a screaming buy according to your way of thinking. Have you become a real estate mogul yet?

May 16 11:21 AM

[ubuy2w:]

Wow from the comments it is clear that not many people think that affordability has any implications what so ever in terms of peoples home purchase decisions. I guess all of those people who sat on the sidelines during the real estate bubble and built up there savings and are now purchasing homes at 70 percent off from their prices of 3 years ago and less than half of replacement costs with long term mortgage rates at the lowest levels in 50 years are really dumb. I mean only a crazy person would buy a perfectly good home with a mortgage payment fixed for 30 years at 600 per month right

May 16 08:07 PM

[pelositit:]

# ubuy2w
you said:
I mean only a crazy person would buy a perfectly good home with a mortgage payment fixed for 30 years at 600 per month right

I say you better be POSITVE your buying in a hood you will want to live in for a LONG time. Realtor and closing fee's take a big chunk of the transaction, you'll need 20% down and a 740+ credit score and be stupid enough to trust your local governments from not taxing you into foreclosure. Don't forget the new furniture and window treatments and don't forget the fire insurance and upkeep costs. You will want a dog too. Keep your weekends free to mow the lawn and plant pretty flowers from Lowes and writing checks for crap you can't imagine yet.
If the family next door who couldn't afford their home in the first place(who received a mortgage write down) start throwing parties every night and force to sell, be sure to figure in those realtor fees and closing costs again.

wait a year

May 17 12:57 AM

[GoldMoney:]

ubuy2w,
Taxes, utilities, and all that insurance alone is going to run well over $600 per month in any decent city. Then add in lots of maintenance since houses are now built with plastic pipes (ever see a lawn chair after it's been out in the sun for a summer? Imagine plastic pipes with chlorinated water running throught them for a few years. The pipes on many houses less than 10 years old already need replacing). Sure you can move to Lubbock for cheap but then you need to live next to a bunch of Brokeback Texans.

Also, prices have not come down 70% in any areas that I'm aware of. The Case-Shiller data suggests nowhere near a 70% decline. Lying about things won't make them better dude...

May 17 01:58 AM

[Jimmy K:]

Mike Brah, I couldn't agree more with your statement...

"Plus, foreclosures are skewing this data. If people can only afford a house during a foreclosure epidemic, that is not a positive indicator"

May 18 09:01 AM