The California Association of Realtors' (CAR) Traditional Housing Affordability Index ((HAI)) measures the percentage of households that can afford to purchase the median priced home in the state and regions of California based on traditional assumptions (methodology here).
The chart above shows the California Housing Affordability Index over the entire history of the series, quarterly from 1988:Q1 through 2008:Q4 (data here and here). In the fourth quarter of 2008, the index reached the highest level in its history, 43%, which means that 43% of California households can afford to purchase the median priced home with a 20% down payment and financing at the national effective average mortgage rate.
In some parts of California, the Housing Affordability Index is as high as 61% (Sacramento), 65% (High Desert), and 56% (Riverside/San Bernardino); and in some areas as low as 17% (San Francisco and Contra Costa) and 19% (Marin).
With falling mortgage rates and falling median home prices, the CAR Housing Affordability Index will likely continue to rise in 2009, which will play a significant role in the recovery process for the California real estate market.
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