California continues to have least-affordable housing

SACRAMENTO
November 21, 2007 9:15am

Despite hundreds of homes being sold at foreclosure and builder auctions, home prices are still so high that most areas of California and even the Central Valley have some of the least affordable homes in the nation, according to figures compiled for the California Building Industry Association.

Homes were less affordable in 13 of the state’s metropolitan areas when compared to the second quarter, while affordability inched upwards in 15 in the third quarter, according to the NAHB/Wells Fargo Housing Opportunity Index, compiled by the National Association of Home Builders.

On a statewide basis, just 12.6 percent of all the homes sold could be afforded by a median-income family, up slightly from 11.7 percent in the second quarter.

In some Central Valley metro areas, the price-income ration shifted enough to move the area into somewhat more affordable territory.

Bakersfield, which had been ranked 29th least affordable area in the nation in the second quarter, is ranked 33rd for the third quarter. The CBIA report says Bakersfield has 18.6 percent of its homes priced so median income families could afford to buy.

Visalia-Porterville, which was 24th in the second quarter, is now ranked 27th, with 15.4 percent affordable housing.

Merced, which was the nation’s third least affordable area in the spring, is now ranked ninth, with 7.4 percent of its homes “affordable.”

Modesto, which was 10th in the second quarter, is 14th in the third quarter, with 9.7 percent of homes priced as affordable.

Stockton, which had been 15th, has moved to 22nd least affordable with 11.3 percent of homes in the affordable range, the CBIA says.

Sacramento is now 29th in the nation. It had been tied for 25th in the second quarter. The report says 17.2 percent of the homes for sale in Sacramento were affordable in the third quarter.

But not all areas of the Central Valley are more affordable. For some, the price-income ratio has tightened further.

Fresno, which was 18th in the second quarter, became the nation’s 13th least affordable area in the third quarter with just 9.5 percent of the homes for sale in the “affordable” price range.

Madera, which had been tied for 19th, is now 15th in the latest report; 10.3 percent of its homes are affordable.

Hanford-Corcoran, which was tied with Sacramento in Q2, is now 23rd, with 12.6 percent of homes priced as affordable.

Chico is now ranked 61st nationally, compared to 65th in the second quarter. The report says 27.2 percent of its homes were affordable in the latest quarter.

Robert Rivinius, CBIA’s president and CEO, says the fact that affordability has not increased dramatically despite a housing downturn that has lasted over a year is “ample proof” that market corrections alone are not likely to allow the hundreds of thousands of Californians priced out of homeownership to be able to buy their first homes.

“California’s housing costs are driven by supply and demand. Because of increased restrictions and regulations, the supply of new homes hasn’t been able to keep pace with the demand of our rapidly growing population, which has made prices climb dramatically over the years,” says Mr. Rivinius. “As a result, California now has 25 of the 30 least-affordable markets in the nation.”

During the third quarter, nine of the 10 least-affordable communities in the nation were located in California, as were 26 of the bottom 33. Napa County saw a significant decrease in affordability, overtaking Los Angeles County as the nation’s least affordable market – only 3.3 percent of homes sold were affordable to a median-income family. Los Angeles County had been the least-affordable market in the nation for 11 consecutive quarters, but is now second with affordability inching upwards to 3.7 percent. Monterey County was the third least-affordable market (4.2 percent), followed by Orange County (4.8 percent), and San Luis Obispo County (5.7 percent).

Only one metro area scored affordability levels higher than 25 percent – Butte County, which decreased from 30.0 percent to 27.2 percent. Affordability climbed by more than 2 percentage points in four California markets, including Merced County, where the affordability rate climbed from 3.8 percent to 7.4 percent. Santa Barbara County saw affordability climb from 6.2 percent to 8.6 percent, while Stanislaus County saw an increase from 7.0 percent to 9.7 percent, and Sacramento County had an increase from 15.0 percent to 17.2 percent.

Nationwide, 42 percent of new and existing homes sold in the third quarter were affordable to families earning the national median income. Kokomo, Ind., became the nation’s most affordable major housing market with an affordability ranking of 90.5 percent, overtaking Indianapolis, Ind., which came in second with a ranking of 87.5 percent.

How the index 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 12 to arrive at a monthly figure.

On the cost side, NAHB receives every month a report 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.