California Still Home to Nation’s Least-Affordable Housing, CBIA Announces
CBIA Calls on State and Federal Lawmakers to Help Make Housing More Affordable
May 20, 2008
SACRAMENTO – Fueled by sharp price reductions in many Central Valley communities, housing affordability soared in many parts of California during the first quarter of 2008, but the welcome news for prospective homebuyers doesn’t mean an end to the state’s chronic housing affordability crisis, the CEO of the California Building Industry Association said today.
Robert Rivinius, the homebuilding association’s President and CEO, noted that while the results of the quarterly National Association of Home Builders/Wells Fargo Housing Opportunity Index are encouraging for homebuyers, the fact remains that affordability in the state’s major metro areas continues to be depressingly low. In addition, underlying demographic trends point to rising prices in the future once the large supply of foreclosed homes is sold.
“On a statewide basis, the HOI found that a median-income family could have afforded 31 percent of the new and existing homes that were sold during the first quarter, which is a significant increase over previous quarters,” Rivinius said.
“But the bulk of those affordability gains were in communities most affected by the subprime mortgage and foreclosure issues, especially communities in the Central Valley. Affordability in most major metro areas remains at or below 25 percent, and we need our state and federal lawmakers to look at ways to streamline the homebuilding process, restore credit to the market, and ease regulations to make housing more affordable when the market corrects itself.”
Many economists believe the current upswing in affordability will be short-lived. For example, Gopal Ahluwalia, Vice President of Research for NAHB, said he expects affordability to decrease in California when the market turns around.
“With declining home prices, lower mortgage interest rates and higher household income for 2008, affordability has improved,” Ahluwalia said. “We expect the market to stabilize in the third quarter of 2008 and start picking up in 2009. With a decline in housing inventory and rising demand, home prices are likely to start moving up in 2009, thereby impacting affordability.”
Rivinius said the most-crucial bills for restoring the homebuilding market are federal legislation to make permanent higher conforming loan limits and establish a $7,500 homebuyer tax credit, and state bills sponsored by CBIA to give builders more time to build approved projects and to allow many impact fees to be paid when a home is sold instead of when the building permit is obtained.
“All of these bills continue moving forward in Congress and here in Sacramento, and we urge lawmakers in both capitols to pass these measures quickly to help stabilize the market, improve the economy, and ensure that qualified buyers can obtain the credit they need,” he said.
During the first quarter of 2008, seven of the 10 least-affordable metro areas in the nation were located in California, as were 15 of the bottom 20. While showing a slight up-tick in affordability, Los Angeles County was the nation’s least-affordable market, with just 10.5 percent of the homes sold affordable to a median-income family, up from 6.2 percent in the fourth quarter of 2007.
Rounding out the bottom five metro areas in the nation were New York City (12.5 percent), San Francisco, San Mateo and Marin counties (12.7 percent), Monterey County (13.1 percent) and San Luis Obispo County (13.8 percent).
The Sacramento region became California’s most affordable market with 49.7 percent affordability, up from 27.2 percent in the fourth quarter of 2007. Butte and Shasta counties became the second and third most affordable markets in California, with 41.5 percent and 38.1 percent affordability, respectively.
Nationwide, 53.8 percent of new and existing homes sold in the first quarter were affordable to families earning the national median income. Kokomo, Ind., remained the nation’s most-affordable major housing market with an affordability ranking of 95.3 percent, followed closely by Lima, Ohio, with a ranking of 95 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 some 6,700 businesses - homebuilders, remodelers, subcontractors, architects, engineers, designers, and other industry professionals. More information is available on the Association's Web site, www.cbia.org.