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Voice of Real Estate: Housing affordability is lowest in 10 years

Posted by Taylor Thompson in Blog, News | 0 comments

How bad is housing affordability? The California Association of REALTORS® (C.A.R.) recently reported that home affordability statewide has dropped to its lowest level in a decade, and it’s worse in San Diego County. The 10-year low in purchasing power was blamed on tight housing inventory that has pushed home prices higher.

In the third quarter of this year, C.A.R. said only 28 percent of California households could afford the state’s $555,680 median-priced home, compared to 29 percent in the second quarter and 31 percent in the third quarter a year ago. In San Diego County, only 26 percent of households could afford to purchase a median-priced home, which remained unchanged from 2016.

C.A.R. said it was the 18th consecutive quarter for its statewide Housing Affordability Index (HAI) index to be below 40 percent, and the lowest since the third quarter of 2015. 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. The index is considered the most fundamental measure of housing well-being for home buyers in the state.

To afford the statewide median-priced single family home of $555,680, a household would need to earn $112,100 annually to make the necessary $2,800 monthly payments, according to C.A.R. The payment includes principal, interest, and taxes on a 30-year, fixed-rate mortgage with a 20 percent down payment and an effective composite interest rate of 4.16 percent. The effective interest rate in the second quarter 2017 was 4.09 percent and 3.76 percent in the third quarter of 2016.

The C.A.R. report also said that the affordability of condominiums and townhomes also dipped slightly from 39 percent during the second quarter of 2017 to 38 percent during the third quarter of 2017. To qualify for the purchase of a $440,000 median-priced condominium or townhome, a California resident would need to earn $88,770 to make monthly payments of $2,200.

Meanwhile, in other recent real estate news, while affordability has been a long problem in San Diego and the rest of California, Zillow reports the rate of homeownership is still increasing. “Housing costs are rising, competition among buyers is fierce and the number of homes actually available to buy is at historic lows, and still, the U.S. homeownership rate is on the rise, climbing for the second straight quarter to its highest level since 2014 and proving American home buyers are nothing if not tenacious and resourceful,” said Dr. Svenja Gudell, Zillow’s chief economist.

Also on the bright side, the San Diego real estate market was the fourth “hottest” in the country in October, based on views of online sales listings. The website Realtor.com, the consumer website of the National Association of REALTORS®, reports a typical San Diego property was on the market for just 40 days in October, compared to the national median of 73 days. The only markets hotter than San Diego were also in California, including San Jose-Silicon Valley, Vallejo-Fairfield and San Francisco-Oakland.

Regarding home prices, San Diego had the third highest annual home price increase in the nation in August, a distinction not reached since 2014, according to a leading real estate index. San Diego County’s home prices have risen 7.8 percent from August of last year and .09 percent between July and August said Standard & Poor’s CoreLogic Case-Shiller Indices. Only Seattle and Las Vegas had bigger increases in the 20-city index.

In the last two years, the San Diego region has averaged around 10th place in the S&P index, making August’s jump noteworthy. San Diego’s yearly increases outpaced the nationwide gain of 6.1 percent and the rest of California. Seattle had the biggest yearly increase at 13.2 percent, followed by Las Vegas at 8.6 percent. Los Angeles and San Francisco had 6.1 percent increases. The lowest increases were in Chicago at 3.7 percent and Washington, D.C., at 3.4 percent.

The indices were created by taking the price of homes in those cities in January 2000, assigning them a value of 100, and tracking their subsequent rise and fall. In August, San Diego’s mark was at 245.55, representing a home value increase of nearly two and a half times over nearly 18 years. Prices have risen at a greater rate only in Los Angeles.

Trending nationally, unemployment is continuing to fall, despite the impact in September of Hurricanes Harvey and Irma on depressed payrolls in Texas and Florida. The nation’s jobless rate fell a notch further in October to a 17-year low of 4.1 percent. The unemployment figure has fallen sharply this year from 4.8 percent in January, suggesting the long-term expansion in the labor market remains solid under the Trump administration. Taking the last three months together, employers added on average 162,000 jobs a month. That is down slightly from last year and the first half of this year, but still well above what’s needed to absorb the natural increase in the workforce population, the government said.

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