The Real Deal
More people able to buy homes, but state lags
The combination of lower mortgage interest rates, higher family income and a seasonal decline in the median existing-home price improved housing affordability nationwide in the fourth quarter with a 55 percent affordability factor. In California, 32 percent of the state's households could afford to buy a median-priced home, while in Santa Clara County only 18 percent were able to buy a place to call home.
The National Association of Realtors housing affordability index measures affordability for all home buyers making a 20 percent down payment and with the exact income needed to purchase a median-priced existing home. The fourth-quarter median family income was $51,282.
The association's president, Richard A. Mendenhall, said all the factors that affect housing affordability are moving in the right direction. "With the significant slowdown in our national economy, this improvement in housing affordability is just the right medicine to keep the housing market moving," he said.
Dr. David Lereah, the association's chief economist, said lower interest rates are crucial to keep the economy out of a recession. "The really good news is that strong interest rate cuts by the Federal Reserve are helping to bring mortgage interest rates even lower. As people buy homes and refinance mortgages, it stimulates overall economic activity--home sales help many related industries, while refinancing effectively increases consumer spendable income," he said.
According to the Federal Housing Finance Board, the average effective mortgage interest rate for existing homes was 7.81 percent during the fourth quarter, down from 8.10 percent in the third quarter. This is a weighed average interest rate between fixed and adjustable loans, including the cost of points, and represents a bottom-line mortgage cost.
In the fourth quarter, the median-income family could afford a home costing $185,300, which is well above the national median price of $139,400, but below the cost of a median-priced home in California at $249,367. "We expect housing affordability conditions to improve as mortgage interest rates continue to edge downward," Lereah said.
Affordability for first-time home buyers also improved, rising 4.6 percentage points in the fourth quarter to 78.3. The association's first-time home buyer affordability index shows a typical first-time buyer household, aged 25 to 44, with an income of $29,563, had 78.3 percent of the income needed to purchase a typical starter home with a 10 percent down payment. The median starter-home price was $118,500 during the fourth quarter.
"It's never been easy to buy your first home, but the typical first-time buyer could afford a house costing $92,800 during the fourth quarter," Lereah said. "However, loan programs targeted to first-time buyers are making it easier, and many have very small down payment requirements, while some have none. These programs can allow a buyer to qualify to buy a more expensive home for a given income, so we recommend consulting with a real estate professional to learn about specific first-time buyer programs available in each market area," he added.
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Saratoga, California Since 1955
