California Home Affordability Dips Year-Over-Year in Q4

California Home Affordability Dips Year-Over-Year in Q4

Residential News » Los Angeles Edition | By Miho Favela | February 13, 2015 9:00 AM ET

According to the California Association of Realtors (C.A.R.), California housing affordability improved from third-quarter 2014 but dipped when compared to a year ago, as lower interest rates failed to offset higher home prices.
The percentage of home buyers who could afford to purchase a median-priced, existing single-family home in California in fourth-quarter 2014 edged up to 31 percent from the 30 percent recorded in the third quarter of 2014 but was down from a revised 32 percent in fourth-quarter 2013, according to C.A.R.'s Traditional Housing Affordability Index (HAI).  This is the seventh consecutive quarter that the index was below 40 percent and is near the mid-2008 level of 29 percent.  California's housing affordability index hit a peak of 56 percent in the first quarter of 2012.
C.A.R.'s HAI measures the percentage of all households that can afford to purchase a median-priced, single-family home in California.  C.A.R. also reports affordability indices for regions and select counties within the state.  The Index is considered the most fundamental measure of housing well-being for home buyers in the state.
Home buyers needed to earn a minimum annual income of $91,550 to qualify for the purchase of a $452,140 statewide median-priced, existing single-family home in the fourth quarter of 2014.  The monthly payment, including taxes and insurance on a 30-year, fixed-rate loan, would be $2,290, assuming a 20 percent down payment and an effective composite interest rate of 4.2 percent.  The effective composite interest rate in third-quarter 2014 was 4.23 percent and 4.43 percent in the fourth quarter of 2013. 
The median home price was $467,280 in third-quarter 2014, and an annual income of $94,880 was needed to purchase a home at that price.
Key points from the fourth-quarter 2014 Housing Affordability report include:

  • Compared to affordability in third-quarter 2014, 19 regions saw an improvement in housing affordability, three saw declines, and nine were unchanged.
  • Only San Francisco, Madera, and Merced counties saw a drop in affordability due to price increases from the previous quarter.
  • Santa Barbara, Contra Costa, Napa, and Los Angeles counties saw the greatest quarter-to-quarter improvement in housing affordability due to price declines.
  • During the fourth quarter of 2014, the five most affordable counties in California were Kings (64 percent), San Bernardino (57 percent), Tulare (56 percent), Madera (56 percent), Merced (53 percent), and Fresno (53 percent).
  • San Francisco (14 percent), San Mateo (15 percent), Marin (15 percent), and Santa Cruz (17 percent) counties were the least affordable areas of the state.

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