California Housing Affordability Increases Slightly in Third Quarter, CBIA Announces
California still home to 7 of top 10 least-affordable markets
November 18, 2010
SACRAMENTO – California housing affordability increased slightly in the third quarter of 2010 with all of the state’s 28 metropolitan areas included in the report showing increases in affordability, the California Building Industry Association said today.
On a statewide basis, the HOI found that a family earning the median income could have afforded 61.1 percent of the new and existing homes that were sold during the third quarter, up from 58.4 percent in the second quarter.
Liz Snow, CBIA’s President and CEO, said that although the state is still home to seven of the top 10 least-affordable markets in the nation, affordability levels continue to remain high by California standards, and encouraged buyers to take advantage.
“As California’s housing market continues to stabilize, affordability levels remain high by the state’s historical standards,” said Snow. “Coupled with record-low interest rates, this is a great time to buy for those who qualify and can afford to purchase a home, and we encourage those to take advantage of this opportunity.”
Snow noted that the increased affordability levels are relative to the downturn in housing and called on lawmakers to secure a permanent source of funding for affordable housing in the near future.
“While recent reports have shown declining home sales in most markets throughout the state, prices have remained relatively stable and we expect to see them increase as we continue through this cycle,” said Snow. “In order to ensure that homeownership remains an attainable dream for California families, we must continue to work with lawmakers to find a permanent source of funding for affordable housing while also reducing barriers to providing housing in hopes of sustaining these affordability levels for future generations.”
San Francisco, San Mateo and Marin counties once again claimed the distinction of California’s least-affordable metro area, and second in the nation, with just 28 percent of the homes sold being affordable to a family earning the median income, up from 21 percent in the second quarter. Fairfield County, Conn., came in third (39.2 percent), followed by Santa Cruz County (40.1 percent) and Los Angeles County (40.3 percent). The New York City metro area continued to hold the title of the nation’s least-affordable market for the tenth quarter in a row (22.6 percent).
Stanislaus County continued to be California’s most-affordable market with 86.8 percent affordability, up from 83.7 percent in the second quarter. Yuba and Sutter counties became the second most-affordable metro area in California with 83.7 percent affordability, while Merced County became the state’s third most-affordable market with 83 percent affordability.
Nationwide, 72.1 percent of new and existing homes sold in the third quarter were affordable to families earning the national median income, down slightly from 72.3 percent in the second quarter. Kokomo, Ind., was the nation’s most-affordable housing market with an affordability ranking of 96.1 percent, followed by Mansfield, Ohio, with a ranking of 95.7 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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