The National Association of Home Builders reported today that the percentage of Orange County homes that a median-income family could afford doubled in the first quarter of 2008 to 17.4%, up from 8.4% in the fourth quarter of 2007.Also out today, the California Association of Realtors reported that affordability levels for first-time homebuyers rose to a level not seen since 2003.CAR reported that 36% of local households could afford an O.C. starter home during the first three months of the year, up eight percentage points from the last quarter of 2007.The minimum household income needed to buy an entry-level home in Orange County fell $22,000 from a year ago, dropping to $96,740 in the first quarter of ‘08, CAR reported.”It’s very simple: Prices have declined. Interest rates have gone down, and income has gone up,” said Gopal Ahluwalia, NAHB’s vice president of research.But the rise in affordability won’t last, Ahluwalia added: “When the market recovers, prices likely are going to go up. Then, affordability will go down.”Here are other recent posts on O.C. home affordability:
- O.C. houses may face another 14% price dip
- O.C. homes the nation’s 5th least affordable
- O.C. home affordability highest in three years
- $191,106 income needed to buy O.C. home
- L.A./O.C. housing ‘least affordable’
Just 2.5% of O.C. homes were affordable to a median-income family here in the first quarter of 2006, according to the home builders index. The low in affordability in the Realtors survey was the second quarter of 2006, when just 21% of households here could afford an entry-level home.But affordability remains elusive for most households overall — even with the latest gains.Nationally, Orange County was the fifth least-affordable market among U.S. major metro areas included in the home builder’s “Housing Opportunity Index,” the home builders said. Among 27 California regions and counties, it had the 13th least affordable entry-level homes.Los Angeles County maintained its ranking of the past 3 1/2 years as the nation’s least-affordable major housing market. Just 10.5 percent of new and existing homes sold during the first quarter were affordable to those earning the area’s median family income of $59,800. Nationally, 53.8 percent of new and existing homes sold during the first quarter were affordable to families earning the national median income of $61,500.The home builders group measures the percentage of homes in an area that that a median-income family could afford. More info…CAR measures the percentage of households in an area that could afford an entry-level home, assuming that first-time homebuyers put 10% down and pay 85% of the local median house price. CAR press release …Below are the affordability numbers for Orange County from both groups:
| Quarter | Affordable home %* | % affording starter home** |
|---|---|---|
| Q1 2003 | NA | 43% |
| Q2 2003 | NA | 42% |
| Q3 2003 | NA | 39% |
| Q4 2003 | NA | 38% |
| Q1 2004 | NA | 35% |
| Q2 2004 | NA | 27% |
| Q3 2004 | NA | 27% |
| Q4 2004 | NA | 28% |
| Q1 2005 | 6.0% | 27% |
| Q2 2005 | 4.4% | 25% |
| Q3 2005 | 3.2% | 24% |
| Q4 2005 | 2.9% | 24% |
| Q1 2006 | 2.5% | 23% |
| Q2 2006 | 3.2% | 21% |
| Q3 2006 | 3.8% | 22% |
| Q4 2006 | 4.0% | 24% |
| Q1 2007 | 4.4% | 25% |
| Q2 2007 | 4.4% | 23% |
| Q3 2007 | 4.8% | 24% |
| Q4 2007 | 8.4% | 28% |
| Q1 2008 | 17.4% | 36% |
Sources: *National Association of Home Builders, **California Association of Realtors
Captain says……………………..
Gave it 110% today………………………………………………………….
She is on the rocks and about to burst……………………………………
June one 2008 is margin call………..as mav would say………………….
The propblem…………………………………………………………………………………….
The captain is a hard nosed sailor………………………………………………………
I will either get off this reef with massive new horsepower……………………
Or go down with the ship……………………………………………………………………….
One million Orange County households. At 13.4%/11% improvement in households who can now afford a home, that’s 134,000/111,000 households who can now afford to buy. That’s good, isn’t it? Ok, they don’t all have a big down, so let’s call it 67,000/55,000 buyers. Oh yeah, add in condo buyers on top of that.
you got the right attitude ScottA
good luck to you
no matter what happens….. life will go on…….
Oops, mismatched statistics. The 111,000/55,000 numbers are the better ones.
Geez, more good news. I’m positively swooning!!
Capt. Scott,
Time to execute “PLAN B”. Throw some duct tape at the engine and call in the calvary (friends, relatives,etc). You MUST stay afloat for a couple more months. Sell assets and regroup. You can’t let all that hard work go for naught. Hold on!
VOR, get the relatives involved in the liquidity squeeze…… OUCH……. life perservers might be wiser
Only the relatives that have money and can wait a while!! Scotty boy cannot let circumstances sink his ship. He has quality assets that can provide him with a real advantage. Lifesavers, floaties, rubber duckys. Whatever it takes.
But the rise in affordability won’t last, Ahluwalia added: “When the market recovers, prices likely are going to go up. Then, affordability will go down.”
He forgot to say “when the market recovers” won’t be for another 1-3 years, or more if prime borrowers start to default in large numbers, which it looks like they might from what I’ve been reading; or people who bought in 2007 and 2008 become underwater in their mortgage, which is a possibility, and they will walk away from their homes in a couple of years.
VoiceofReason Says: “Geez, more good news. I’m positively swooning!!”
I’m sorry, how is that good news to you guys the permabulls?
Hello…. anybody home?
Homes are more affordable because THEY HAVE COME DOWN IN PRICE
Did you realize what you just said? You are happy because home prices are going down? I thought you guys wanted to keep home prices up.
Just to continue the thread…
Thoughtful Says:
May 20th, 2008 at 7:22 am
“Marcia, I don’t think you’re “watching supply and demand in action” at all. You are watching market psychology and the effects of a credit collapse. How else can you explain a slump that encompasses the entire country? That psychology is turning at this very moment. The rest is guesswork.”
We are watching supply and demand at work. This is what supply and demand looks like in the real world, not in some textbook. The herd mentality creates shortages or excesses beyond what it needs to be.
Just look at what is happening to the price of rice. Because we are now using Ethanol as a substitute for our gas (instead of natural gas, which I understand we have plenty of, and people can’t eat), it is driving up the rest of the commodities, creating a shortage in rice. Who would’ve made that connection?
All markets act exactly the same way. In the case of Real Estate, the Fed created an artificial rise in prices by lowering rates below the market. This created an excess demand (anyone who has had to draw those inane supply demand curves knows exactly how the demand curve pushes out when prices are cut, in this case the monthly payment). Once prices ran up, and the Fed turned around to bring interest rates back into line with market, prices had no where else to go but down.
Only difference is that Real Estate is very “sticky” on the way down because people live in their investment. They only sell if they have to.
Banks have no emotional attachment however. They are selling at market, given current interest rates. Remember that a 1% teaser rate for 2 years in fact is the market rate; the nominal rate is real rate, at least for those 24 months. If you move to a 5.5% rate, you’ve increased that price by over 400%. How would you expect demand to respond to a 400% increase in monthly interest expense now that teaser rates are history?
That’s why buyers have been on the sidelines.
And, oh, by the way? The fact that affordability has gone from 17% to 36% for a starter home? Whoop-dee-do!
With oil going to $130/barrel, people are now not shopping at Target. You know it’s getting bleak when people stop shopping at the discount stores. Everyone is saving every dime for the gas they need to keep their jobs, the food they need to put on the table, and their rent payments (or PITI).
This real estate market is about to take another step down.
Those of you who don’t have to sell; do the duck and cover move and wait 36-60 months.
Those of you who are thinking of buying, you may want to wait just a bit longer…like at least until winter. The slow fall and winter season will mean thousands in savings for you. $60K is $60K. I don’t care how many years it takes for your house to recover. You will have always lost or gained that $60K plus the investment return on top of that.
By the way, $60K in 30 years equals about $344K at 6% return. So don’t let a realtor tell you that you can wait it out. If you are 30 years old, what would $344K mean to you in retirement 30 years from now? So it’s not just $60K. It’s a whole lot more.
Thoughtful Moron Says:”Only difference is that Real Estate is very “sticky” on the way down because people live in their investment. They only sell if they have to.”
LOL. Tell that to the people who bought in 2005. Home prices have come down 20% in just one year and this moron says that prices are sticky on the way down.
His head is sticky.
Methinks the CAR affordability spin is at work here: affordability numbers calculated using the new formula for first-time buyers (one-year ARM etc.) but compared with those from the old formula in 2003 (30-year fixed mortgage) — is that true? C’mon journalists, be more hard-headed with the data.
Bubble,
How can you not get this: Some are looking for a stabilization of sales, then prices, then a return to normal appreciation. Nobody is saying they want the RE market to be like 05. Is that so hard to understand??
NationalIdiot.com, Marcia said that, not me. Hey Marcia, do you offer a money back guarantee with your advice? What if it turns out you COST someone $60,000 because they had an incredible deal?
They are right about current affordability not lasting. It is going to get a whole lot better.
Scratch that, it looks like it is “Our Blogger” who made a mistake in parsing the CAR release. CAR reports that affordability for California is at 44% — the table above shows OC affordability to be 44% in 2003, affordability for California as a whole in 2003 was probably higher, I’ll guess 54%.
The rate they use is 5.65%.
Speaking of “hard headed”, where did it say “one year arm”? I saw “adjustable”, not quite.
Thoughtful Says:
May 20th, 2008 at 6:58 pm
“Hey Marcia, do you offer a money back guarantee with your advice? What if it turns out you COST someone $60,000 because they had an incredible deal?”
You’re welcome to prove her wrong by buying now. Personally, I’m betting that they’ll have an even better deal next year. As Marcia has re-iterated, OC RE is not immune from the ills of the overall economy.
National Association of Home Builders is a mouthpiece of Builders to get rid of their inventory. Keep hyping. No thanks.
Thoughtful Says:
May 20th, 2008 at 6:58 pm
“Hey Marcia, do you offer a money back guarantee with your advice? What if it turns out you COST someone $60,000 because they had an incredible deal?”
No guarantees in life thoughtful. Marcia made excellent points and presented a very clear picture of what the future may hold based on solid market fundamentals.
You on the other hand, constantly distort statistics to prove a point most of us know is so very wrong. It must crush you to know that even the realtor associations no longer would agree with your uneducated views on the state of OC real estate. What is your revised bottom call or are you sticking to Jan 08
Realtor Dave-
You are correct in that no one can time the market.
And when homes cost $150K, I’d have said no problem. But when a “home” went over half a million bucks, it no longer became a home, but the largest single security in any regular joe or josephine’s portfolio probably by a factor of 10-20 times (assuming they had $25K-$50K in a savings account, which, by all factors in the last couple of years don’t even point to that).
And any investment advisor would tell any investor to diversify, not put all their eggs in one basket.
So I agree with your theory, especially the locking in the lower rate scenario. But if the difference is another $50K-$100K for waiting 120-180 days, I don’t know…it’s a personal choice. I for one, will wait, unless I can get an REO at 35% discount.
And Thoughtful, how many homes have you closed on between last June and now please? I know you have to have locked in a bundle…and not on sale either please, because I know you’d never take advantage of some poor soul having to sell at a discount.
And if you haven’t bought, why not? Since we are clearly at the bottom, according to you.
Just like we had a double top, I think we are in for a double bottom. Only because oil has now hit $130 a barrel.
We’ll see.
Either Thoughtful is right that Jan ‘08 was the bottom (or was it Feb? or Mar? oh, that’s right, April…), or Realtor Dave will have called the bottom this coming Winter.
Whom do you all believe?
NationalBubble-
Prices are “sticky” on the way down. That’s why inventories are incredibly high and non-REO sales were just above 1000 in April. That means non-REO prices are still too high. If they were lower, more buyers would move off the sidelines and inventories would fall for other than REO type properties.
I know everyone else understands this concept. I’m sure you do too, but just wanted to make sure…
I wonder how difficult it is to see the affordability number before 2003. I bet it is much higher than 25% in some of the quarters.
What a joke. Affordable? No way. It may be more affordable than before - duh - that’s what happens when the value drops, but to say that an SFR is affordable in OC is not a fair statement.
By the way, being able to “afford” a house doesn’t mean it’s a good financial move for someone. It also doesn’t mean that it’s worth the money. It just means someone is able to make the payments however huge they may be.
Here we go again, distorting my call. I repeat: I called a “Bottom: January 2008″ in jest on March 24, 2008. However, I continue to believe that January 2008 marked the TURNAROUND of the market. The evidence shows that I was RIGHT! Deal with it!
Okay Thoughtful. Whatever you say. The main point is that you are “right”. That’s all that matters anyway. You are right, whatever you say man.
The pool of potential buyers is 111,000 more than it was a year ago. THAT is one hell of a lot of buyers and explains the SURGE in sales.
“The evidence shows that I was RIGHT! Deal with it!”
“The evidence shows that I was RIGHT! Deal with it!”
“The evidence shows that I was RIGHT! Deal with it!”
What’s that? Oh, I get it! You are RIIIGHT!!!!!!
Why is 85% of median price “entry level”? There are many entry level homes/condos in Orange County available at a far lower price.
NationalBooble had this to pitch: Take a look at what this expert says about the US economy and the real estate market. ( And while I’ve got you suckered into visiting my website, please be sure to sign up for, or buy something - my house payment is rapidly approaching.)
wow a whole 17% of people in OC (1 out of 6) can afford a home (if one believes NAR/CAR stats). stop the presses!!! RE is back in The OC!
You read that wrong. Thirty six out of 100 can afford 85% of the SFR median (they peg this to be $508,200). Many more can afford something priced lower than that.
Oh, add in more than 10% down and the number goes higher still.
“…to lock in a 30 year fixed mortgage at what she believes may become an historic low, what with rising inflation returning.”
However, won’t higher interest rates place further downward pressure on housing prices?
In addition to reducing downside risk, higher interest rates + lower prices would translate to lower property taxes, larger tax write-off for loan amount, and the potential to refinance to lower rates at a later time.
So isn’t the scenario of higher interest rates actually a benefit to purchasers with larger downpayments?
Also how many of those newly christened as being able to afford a home in the OC have already purchase a home in the last few years?
Maybe I missed it but are the stats based on those individuals who HAVE NOT purchase a home or just everybody who has a certain income in the county. Because if it is everybody then you would have discount a certain segment due to already owning a home(s) and take way those too smart to buy the fear product (me). Still not buying.
Oh boy let’s all leverage ourselves to the max for an asset that will be going down 24.8% this year and more the year after that.
Who wouldn’t wait until after the tidal wave of alt-ARM hits the market?
Realtors and other pathetic sellers could try putting a gun to buyers heads is about all they can do.
Eat it in the OC-
Exactly! Thoughtful says that 111,000 more buyers have been created due to the downturn in RE prices, explaining the recent uptick in sales volume.
I agree. Just because 111,000 more residents can afford to buy, doesn’t mean that already haven’t. So of those 111,000, how many are still waiting?
Also, the reason for the surge is due to 40% of the sales being REO’s at 30%-40% discounts. Remove those from the sales numbers and April numbers look pretty bleak.
Lastly, as you and others have pointed out, just because the POS house falls within your price range doesn’t mean you are going to go out and buy it, especially if there is a much nicer, larger home about to fall into your price range in the next 6 months.
I also agree about higher interest rates creating lower home prices and benefitting buyers in the long run when they can refinance into a lower rate when rates turn around. This is a much better position to be in than overpaying and getting a low interest rate loan. Because you can never reduce what the total cost of the house is that way. The principal never falls, while interest rates can and do. So good point on that one too.
even if all the fence sitters decided to spend 100% of their income on a house….. to bail out home debtors…… after that house prices can still only go up at the rate that income increases
how this fundamental goes over the head of the permafools? that’s beyond me……
[...] of a market at its bottom? O.C. home affordability jumps in 2008’s first quarterO.C. monthly home sales crack 2,000 for 1st time since credit crunchShaky credit no big problem for [...]
[...] of a market at its bottom? O.C. homes seen as 25% less unaffordableO.C. home affordability jumps in 2008’s first quarterO.C. monthly home sales crack 2,000 for 1st time since credit crunchShaky credit no big problem for [...]
Unfortunately the housing market in Orange County and the surrounding areas are not as strong or affordable as we would like. On a positive note, it is reassuring to see prices decreasing and affordability increasing. It will be interesting to see what the next quarter will bring in terms of the real estate market.
[...] O.C. home affordability jumps in 2008’s first quarter [...]
[...] O.C. home affordability jumps in 2008’s first quarter [...]
[...] O.C. home affordability jumps in 2008’s first quarter [...]
[...] O.C. home affordability jumps in 2008’s first quarter [...]
[...] O.C. home affordability jumps in 2008’s first quarter [...]
[...] O.C. home affordability jumps in 2008’s first quarter [...]
[...] O.C. home affordability jumps in 2008’s first quarter [...]