With lower home prices, more Californians could afford a home purchase in the fourth quarter of 2018 compared to the previous quarter, but the California Association of Realtors reports higher interest rates lowered affordability from the previous year for most counties.
According to C.A.R.’s Traditional Housing Affordability Index, the percentage of homebuyers who could afford to purchase a median-priced, single-family home in California in fourth-quarter 2018 edged up to 28 percent from 27 percent in the third quarter of 2018, but that percentage was down from 29 percent in the fourth quarter a year ago.
The index, which is considered the most fundamental measure of housing well-being for home buyers in the state, has been below 30 percent for six of the past eight quarters. California’s housing affordability index hit a peak of 56 percent in the first quarter of 2012.
Homebuyers needed a minimum annual income of $122,340 to qualify for the purchase of a $564,270 statewide median-priced, single-family home in the fourth quarter of 2018. Their monthly payment, including taxes and insurance on a 30-year, fixed-rate loan, would be $3,060, assuming a 20 percent down payment and an interest rate of 4.95 percent. The interest rate was 4.77 percent in third-quarter 2018 and 4.17 percent in fourth-quarter 2017.
Housing affordability improved from fourth-quarter 2017 in 10 tracked counties and declined in 30 counties. Affordability in eight counties remained flat. In the San Francisco Bay Area, affordability improved from a year ago in Marin, San Francisco, San Mateo and Santa Clara counties, while Contra Costa and Solano counties saw a decline in housing affordability. Affordability held steady from a year ago in Alameda, Napa and Sonoma counties.
In Santa Clara County, affordability improved to18 percent from17 percent in third-quarter 2018 and 15 percent in fourth-quarter 2017. Homebuyers needed a qualifying income of $271,010 to purchase a $1,250,000 home in fourth-quarter 2018. Their monthly mortgage payments would amount to $6,780, assuming a 20 percent down payment.
Alan Barbic, president of the Silicon Valley Association of Realtors, says though interest rates are higher than they were a year ago, they are still favorable from a historical standpoint. Barbic does note that small changes in interest rates can affect affordability and impact homebuyers in a number of ways.
“Higher interest rates have significant effects on costs for homebuyers. Rising interest rates can affect what a borrower can qualify for and the maximum purchase price or loan amount. It would mean higher monthly mortgage payments,” explained Barbic. “Higher interest rates can also result in home sellers dropping their asking price in order to attract buyers, which helps stabilize home prices. This could be the direction our housing market is heading.”
Barbic shared the good news that mortgage rates dropped to their lowest levels in a year last week, with the 30-year fixed-rate mortgages averaged 4.37 percent dropping from the previous week’s 4.41 percent average. “This could revive demand for the spring home buying season,” he said.
In the fourth quarter of 2018, the most affordable counties in California were Lassen (66 percent), Kern (53 percent) and Kings and Siskiyou (both at 50 percent). Mono (12 percent), Santa Cruz (12 percent), San Mateo (15 percent), San Francisco (15 percent) and Santa Clara (18 percent) counties were the least affordable areas in the state.
Compared to California, more than half of the nation’s households (54 percent) could afford to purchase a $257,600 median-priced home, which required a minimum annual income of $55,850 to make monthly payments of $1,400.
