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O.C. home affordability highest in three years
February 19th, 2008, 4:40 pm · 28 Comments · posted by Jeff Collins
The California Association of Realtors reported today that 28% of Orange County residents could afford to buy an entry-level home here last fall — assuming that they could find a jumbo loan to finance it.
That affordability rate increased from 24% in the same quarter a year before and was the highest in Orange County since the fourth quarter of 2004, when the rate last was at 28%.
The CAR First-Time Buyer Housing Affordability Index is a theoretical measure of how many residents can afford an entry-level home. First-time buyers typically purchase a home equal to 85 percent of the prevailing median price.
The minimum household income needed to buy an entry-level O.C. home in the fourth quarter of 2007 was $111,900, CAR reported. That’s based on an adjustable interest rate of 6.21% and assumes the buyer makes a 10 percent down payment. The monthly payment including taxes and insurance was $3,730. The U.S. Census Bureau estimated that 62.4% of O.C. households owned their own home in 2006, the latest year for which there are O.C. figures. Thirty-three percent of Californians could afford the typical starter home in the state.
The latest figures show O.C. to be slightly more affordable than Los Angeles County, but way less affordable than the Inland Empire. CAR reported that 27 percent of Los Angeles County residents could afford entry-level homes there, while 46% of residents in Riverside and San Bernardino counties could buy a starter home in that region. At 54 percent, the High Desert was the most affordable region in the state, followed by the Sacramento region at 53 percent. Monterey was California’s least affordable region at 20 percent, followed by the Santa Barbara region at 21 percent.
To see the press release and a statewide region-by-region chart, CLICK HERE!
Here are first-time buyer affordability numbers for Orange County:
| Quarter | Affordability |
|---|---|
| Q1 2003 | 43% |
| Q2 2003 | 42% |
| Q3 2003 | 39% |
| Q4 2003 | 38% |
| Q1 2004 | 35% |
| Q2 2004 | 27% |
| Q3 2004 | 27% |
| Q4 2004 | 28% |
| Q1 2005 | 27% |
| Q2 2005 | 25% |
| Q3 2005 | 24% |
| Q4 2005 | 24% |
| Q1 2006 | 23% |
| Q2 2006 | 21% |
| Q3 2006 | 22% |
| Q4 2006 | 24% |
| Q1 2007 | 25% |
| Q2 2007 | 23% |
| Q3 2007 | 24% |
| Q4 2007 | 28% |
Source: California Association of Realtors
February 19th, 2008 at 5:14 pm
Affordibilty is higher than 28% because first time buyers purchase cheap condos and move up over time. This low number also doesn’t account for equity many owners use to moveup. nevertheless another indicator that sales will be increasing from here on out.
February 19th, 2008 at 5:14 pm
Affordibilty is higher than 28% because first time buyers purchase cheap condos and move up over time. This low number also doesn’t account for equity many owners use to moveup. nevertheless another indicator that sales will be increasing from here on out.
February 19th, 2008 at 5:41 pm
It’s truly hard to imagine sales falling any lower! What won’t increase any time soon is price. In fact, given the chart above, it would appear prices will have to adjust downward to the level where 42% of OC households can afford to buy: Q1 2003 levels.
Won’t that be an interesting scenario!
February 19th, 2008 at 6:15 pm
marica hit it on the nose this housing crash is in full swing with the credit crunch it might tighten even more this wil put pressure on home prices to futher fall. my bid directly from home builders themselves will be sometime later this year. my low ball bids will be greatly wanted now and even more later. stay on the sideslnes people the waiting will pay off its got more to fall home prices im talking about .
February 19th, 2008 at 6:30 pm
Great chart, Jon
Like Marcia pointed out there’s some great information available from your chart.
The comparison I like best is Q4 2006 – 24% vs. Q4 2007 – 28%
Prices have dropped 13% YTD but affordability has only gone up 4%.
That’s a sign that prices have to fall substantially more to become affordable for buyers once again.
February 19th, 2008 at 6:47 pm
Affordable-yes. If you look at the listings, there is a house in Santa Ana listed for $255K, and another for $271K, thats truely amazing! Although we arent quite as affordable as the rest of the nation, we are getting there. We are not the “hot” place to live anymore, and the world no longer revolves around us. It is reflected in the lack of demand for our real estate.
February 19th, 2008 at 6:59 pm
aFFORDABILITY IS WHEN THE AVG HOME HERE IS A
price of around 420k….
that is what it will be with a 10 to 15 k difference either way
THAT IS MY PREDICTION AND THATS WHEN RENTS AND HOME OWNERSHIP GETS CLOSE IN RELATIONSHIP TO MONTHLY OUTFLOWS
THIS IS VERY VERY CLOSE TO WHERE IT SHOULD GO TO THATS ANOTHER 20 PERCENT FROM WHERE WE ARE AT NOW
YOU HEARD IT HERE FIRST I WILL KEEP THIS IN THE ARCHIVES
mR. WIZARD OF BLOGGING PLEASE FEEL FREE TO BRING THIS BACK THIS IS RIGHT ON
ANOTHER GREAT INVESTIGATIVE REPORTING….LOLLLLL
February 19th, 2008 at 7:31 pm
I seem to recall that CAR changed their methods of calculating affordability a couple years back by switching from 20% down and a fixed rate loan to 10% down and an ARM when their index had become a complete joke.
I’m not sure what to make of these numbers but with it coming from a realtor trade group I’m going to take it with a large grain of salt.
February 19th, 2008 at 7:47 pm
I actually have to thank CAR for doing this analysis, it’s good for a laugh.
It would be a lot more valuable though to know what percentage of the OC has more than $50K (~10% down payment) in cash sitting around.
most people here owe their soul to credit
February 19th, 2008 at 7:55 pm
Who needs the grain of salt? Just read what it says, only the wealthiest 28%, i.e. those who already own 1M homes could afford to buy a starter condo at these prices. I remember when I bought a 2300 s.f. SFR a few blocks from the beach in the nicest neighborhood on my salary alone with a modest down.
Now the same payment gets you a condo? Please, people, there are other places to live, many a lot nicer than this. Salaries there are just as good as here. All bubbles pop and this one is popping now.
You can see people fighting with the denial. But gradually they will come to accept the reality. It’s just like the crash of 3001 in the stock market. It took a while, but people got it eventually. And where have stocks gone from the bubble peak 8 years ago? Down 15% with actual inflation of goods and services prices at 6%, for a real loss of 50%. Ouch!!!
February 19th, 2008 at 8:36 pm
If you look to a slightly more credible entity than used house salespeople, NAHB & Wells Fargo didn’t change their metric when they didn’t like the results.
In that Housing Opportunity Index (HOI), OC went from the top 4% of income earners being able to afford the bottom 50% of homes to the top 8% of earners.
It still isn’t affordable and has a long way to go to correct. BTW, the median 4 person household income hasn’t changed from 78,000 since Q1 of 2006.
No income growth to bail out the bubble either.
February 19th, 2008 at 9:02 pm
Fools data , perception so far detached from reality. Even considering other way there are majority 72% who can not buy. LOL.
Now how many of these 28% need to buy? This is signal that we are at the tipping point. Rule of game we need data with unbiased results.
So many of fellow bloggers have pointed question of income and price detachment.
Lets hope this ponzi plan which drove people in droves is gone. Incomes just donot support the housing prices. Time will tell. I recall discussions when people just refused that housing will lose steam. Now same one still refuse that it is going for biggggg correction.
February 19th, 2008 at 9:14 pm
I too can make a billion dollars.
Assuming I am able to make it.
To problem here.
Move on.
February 19th, 2008 at 9:40 pm
It is sort of sad to see an organization such as the CAR that has members(realtors) that are too stupid to understand what is going on in the real estate market. As their paychecks get smaller and smaller because nobody is buying homes you would think that the CAR would start to urge their members(realtors) to demand sellers lower their prices. Instead they put out reports about afford ability that nobody with any intelligence(and money) pay attention to.
I will sell this house today
I will sell this house today
I will sell this house today
I will sell this house today
February 19th, 2008 at 9:59 pm
This is a good thing. I think when the percentage gets between 38 and 45% we will be near the bottom. I would think this would get us to the end of the year and at second quarter of 2003 prices or a slide backwards of more than 5 years.
Sadly this still means that only somewhere around 24% can afford a median priced home or higher. When this percentage gets over 35% I think we will be in much better shape.
February 19th, 2008 at 10:13 pm
The CAR assumes a 10% down payment, or about $50,000 for its “entry-level” half-million-dollar house.
They also assume that the borrower can dedicate 40% of his pre-tax income to housing costs. Since lenders typically don’t allow a TOTAL debt-to-gross-income ratio of over 40%, the CAR is assuming the buyer has no other debt.
From the sound of it, CAR’s “typical OC first-time homebuyer” must be a slightly geeky BYU Law grad (how else do you command $111,000 per year without taking on any student debt?) who rides his bike instead of making a car payment. Oh, and who has socked away fifty grand.
How many people like that are there in this county? Six?
“Fool’s data,” indeed.
February 19th, 2008 at 10:20 pm
sure OC is affordable, i will drive to my bank withdraw 10% of the median OC house price and get a jumbo loan for 7.15%. Life was never this affordable. I am sure everyone in the OC has spare cash lying around. prices in OC are a joke..give me a break, wonder how many can really afford a home here.
February 19th, 2008 at 10:37 pm
You’d think they wouldn’t announce this kind of data…but stupid is as stupid does..
I was wondering the other day if 50K just suddenly appears in your bank account? It doesn’t, does it? No you have to save for years and most likely you spent that savings a year or two ago when you bought your dream home when everyone was buy..buy…buy. Camping in the street for days/weeks to have just a chance to buy that McSh*t box. I wonder how many people did that…the data from 04-06 sales tell me a whole hell’v a lot.
I’ve also had the chance to look at the NOD, NTS data and believe me, if you think it’s bad now…whoanelly look out…
February 19th, 2008 at 10:48 pm
Is it some kind of sick jokes part 3 from National Association of Realtors?
February 19th, 2008 at 10:52 pm
# shockg Says:
February 19th, 2008 at 5:14 pm
Affordibilty is higher than 28% because first time buyers purchase cheap condos and move up over time. This low number also doesn’t account for equity many owners use to moveup. nevertheless another indicator that sales will be increasing from here on out.
–
Got me wondering shlockg, how’s that “equity” holding up?
I saw a story somewhere about a couple of folks here in OC who found their equity wasn’t………so yes, their houses will be sold too, increasing sales.
A couple of these decent folks had listened to thieves who kept saying “now is the time to buy.”
Why would someone do that? Ignorance? Greedy self-interest?
Help me to understand your motive.
February 19th, 2008 at 11:12 pm
Here’s an example of how absurd these numbers are. My annual income is $113,207, slightly above the $111,900 minimum household income needed to buy an entry-level O.C. home according to CAR.
My take-home pay is 2386.96 biweekly. (5171.74 monthly average) If you are wondering why the take-home pay seems low, I contribute the maximum every year into my 401k.
The monthly payment including taxes and insurance would be $3,730. So after the mortgage payment, I would have 1441.74 left for car payment, car insurance, gas, groceries, utilities, cable, internet, etc. That’s 72% of take-home income going toward an adjustable rate mortgage to buy an entry-level O.C. home I think I’ll wait.
February 19th, 2008 at 11:25 pm
Not only that, but if you take the time to look up CAR’s own data, the average down payment put down by first-time buyers last year was….
$10,000!!!
So their own data contradicts their made up statistic!
Hilarious.
February 19th, 2008 at 11:42 pm
I sense a stillness in the OC real estate air. I sense many thousands of home-borrowers in the county on their last financial legs. Their garbage mortgage payment is increasing or recasting soon and they don’t have the money to make the extra payments. So their choice is to walk away from their home, or go get a 2nd job and work 60-hours a week. Many people with kids cannot do that. When the selling season starts in a couple months, I predict we’ll see an all-time high of inventory stagnant on the market as these sellers in denial list their homes for the unrealistic prices of yester-year. People will literally have to sell, or walk away from the properties if they cannot sell for enough to break even. They cannot refi to save money and they cannot make values magically go back up 15% since values are going down over a percent each month. I expect a decrease in values larger this summer than there was this past summer. The brown stuff has not hit the fan quite yet people. There’s a lot still to come.
February 20th, 2008 at 7:04 am
A jumbo loan for an “entry-level home”? And still only 28% affordable. That’s still very bad. What is an “entry-level” home? If you have to get a jumbo loan (not good) to get a home that you’re planning to move out of into a “senior-level home” (?) then how is anyone going to ever be able to move up later? They’ll need a mega loan for that - and that’s why there are all these foreclosures today. People can not afford to pay them back in the long run,even in the short run… what a mess!
February 20th, 2008 at 8:19 am
It is sick jokes part 3 from National Association of Realtors. Do they ever read or do some research before they released this type of information?
February 20th, 2008 at 8:58 am
O.C. affordability is highest in 3 years and according to CAR 28% of people can now afford to buy an overpriced piece of Real Estate that will further depreciate in value over the coming years; yet comes with a monthly cost higher than comparable rentals. That was the great news!
The not so great news is that of those 28% many either already own a home, are facing foreclosure, or belong to to an increasing number of Americans that have a negative savings rate. This update was brought to you by CAR - the official sponsor of the California Housing Bubble.
February 20th, 2008 at 5:33 pm
Thomas:
You picked up on what I saw - they are requiring a first time buyer to spend 40% of their pretax income on PITI (but excluding maintenance AND taking the risk of using an ARM - those aren’t working out too well for people these days). Good luck finding a loan with that type of DTI, especially for a first-time buyer. They better have no other debt and like to live frugally, because they won’t have much money left to live on.
Ignoring the change in methodology (when CAR’s affordability numbers were becoming too depressing for them), this shows that houses in OC are still not affordable and prices will continue to fall much further. As SunsetBeachGuy noted, the NAHB/Wells Fargo index is a little more realistic.
May 22nd, 2008 at 10:51 am
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