California Housing Affordability Rises in Third Quarter, CBIA Announces

November 17, 2011

SACRAMENTO – Californians were able to afford a higher percentage of homes sold in the third quarter of 2011 as housing affordability increased in 22 of the state’s 28 metropolitan areas included in the report, the California Building Industry Association announced today.

On a statewide basis, the HOI found that a family earning the median income could have afforded 63.5 percent of the new and existing homes that were sold during the third quarter, up from 61.3 percent in the second quarter.

Mike Winn, CBIA’s President and CEO, noted that this continues to be a great time to buy a home for those who qualify.

“As builders continue to compete with a glut of foreclosures and as housing prices continue to find their footing, this remains an opportune time for prospective home buyers,” said Winn. “We hope that record-low interest rates coupled with these historically high affordability levels will coax buyers off of the sidelines. We can then continue to clear the unsold inventory and help get job-generating home construction back to healthy levels.”

The San Francisco, San Mateo and Marin County metro area was once again California’s least-affordable metro area for the twelfth consecutive quarter, and second in the nation, with just 32.9 percent of the homes sold being affordable to a family earning the median income, up from 27.5 percent in the second quarter. Orange County was California’s second least-affordable market, and fifth in the nation (43 percent), followed by Los Angeles County (45.1 percent) and Santa Cruz County (47 percent). The New York City metro area continued to hold the title of the nation’s least-affordable market for the 14th consecutive quarter with 23.3 percent affordability.

Of the state’s 28 metropolitan areas included in the report, the five that showed decreases in affordability were San Luis Obispo County, Fresno and Madera counties, Shasta County, Tulare and Kings counties and Solano County. Madera County was even with the previous quarter.

Sutter and Yuba counties were again California’s most-affordable metro area with 89.3 percent affordability, up from 88 percent in the second quarter. Stanislaus County became the state’s second most-affordable market with 89.2 percent affordability, followed by Merced County with 87.6 percent affordability.

Nationwide, 72.9 percent of new and existing homes sold in the third quarter were affordable to families earning the national median income, up slightly from 72.6 percent in the second quarter. Fairbanks, Ala., was the nation’s most-affordable housing market with an affordability ranking of 97.8 percent, followed by Kokomo, Ind., with a ranking of 96.9 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.

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