Near-Record Affordability in Real Estate

California metros among least affordable areas in U.S.

Inman News

Wednesday, September 8, 2010.

The share of homes that families making the national median income could afford to buy remained above 70 percent for the sixth quarter in a row, according to the latest National Association of Home Builders/Wells Fargo Housing Opportunity Index (HOI).

Nationally, the HOI was at 72.3 percent in the second quarter, unchanged from the same time period last year and close to the index’s record-high 72.5 percent, set in first-quarter 2009.

The HOI tracks the share of homes sold in a particular area that would have been affordable to a family earning the local median income. The index assumes a family can afford to spend 28 percent of its gross monthly income on housing, according to NAHB’s website. Annual median family income estimates by metropolitan area come from the Department of Housing and Urban Development.

In first-quarter 2009, there was a 10.1-percentage-point jump in the affordability index from fourth-quarter 2008, and it marked the first time the index jumped into the 70s range in the index’s nearly 20-year history.

To calculate cost, NAHB uses sales data from CoreLogic. The monthly principal and interest a homeowner would pay assumes a 30-year fixed-rate mortgage, a 10 percent downpayment, and an interest rate equal to a weighted average of fixed and adjustable rates during that quarter. Estimated property taxes and property insurance rates from the 2000 Census are included; mortgage insurance is not.

The median home price nationwide was $179,000 in the second quarter of this year, up from $177,000 in 2009’s second quarter. The weighted interest rate was slightly higher, 5.11 percent, in the second quarter compared with 5.03 at the same time in 2009. The national median income was $64,400. The index covered 225 metro areas.

NAHB attributed the continuing high level of affordability to favorable interest rates and low home prices.

“Homeownership is within reach of more households than it has been for almost a generation,” said Bob Jones, the building association’s chairman, in a statement.

“Interest rates continue to hover at historic low levels, the economy is beginning to rebound, and with house prices starting to stabilize, conditions are beginning to draw homebuyers back into the market, which is a positive step on the path to recovery.”

Three Rust Belt states featured prominently among the top 10 most affordable metro areas: Ohio, Michigan and Indiana. Syracuse, N.Y., was the most affordable metro area in the country, where households with the area’s median family income of $64,300 could afford a whopping 97.2 percent of homes sold.

That metro area pushed Indianapolis-Carmel, Ind., which had held the top spot for nearly five years, to the 14th most affordable metro area. Syracuse had a median sales price of $88,000 in the second quarter, compared with $179,000 nationwide, according to the NAHB.

Syracuse is “not a boom and bust city,” said Don Radke, president of the Greater Syracuse Association of Realtors.

“We’re not a Wall Street. We don’t have that kind of an economic engine or drag. We’re a working-class city with a strong education and medical component to it, and it just rolls along. Sure, (the lending environment) is tougher than three years ago, but we’re still making loans.

“We have a very educated workforce — good, solid financial families day-in and day-out, and those people can get loans,” Radke said.

“Our sales are down numerically, but our prices are holding. We didn’t get into the toxic loan situation. Our foreclosure rates are nowhere near the rest of the country. All real estate is local and we’re a good example of that.”

Radke also said that the median sales price for Syracuse was around $130,000, according to figures kept by the association, which has about 1,400 members. That contrasts with CoreLogic’s median of $88,000.

Syracuse’s non-seasonally adjusted unemployment rate was 8 percent in July, compared with 9.7 percent nationally, according to the Bureau of Labor Statistics. Meanwhile, other areas that ranked highest in terms of home affordability also had high unemployment rates.

All but two in the top 10 most affordable areas had unemployment rates higher than the national rate. The average for all 10 areas was 11.5 percent. That compares with a 10.3 percent average rate for the 10 least affordable metro areas.

Though the unemployment rate in Bay City, Mich., was at 12.8 percent in July, the home sales this year have been better than last year, according to Bob Adamowski, CEO of the Bay County Realtor Association.

“Our market has been very good for the last couple of years. We set the third-highest total in closings last year of any year that we’ve been keeping records, back into the 1970s,” Adamowski said.

“The reason for that is our average price went from a high of about $106,000 down to about $54,550. We’ve had an awful lot of foreclosures. Probably half of the sales are foreclosed or (bank-owned) properties.”

California dominated the list of top 10 least affordable markets, accounting for seven out of 10.

The San Francisco metro area was the second least affordable area in the nation among those ranked, after the New York City metro. It’s HOI score was 21 — a median-priced home in the San Francisco metro area cost $610,000 in the second quarter, according to the NAHB.

Affordability is definitely an obstacle to making sales, said San Francisco agent Cece Blase.

“Buyers now are already nervous and a San Francisco home is a huge investment. Even if they qualify for (a loan from the Federal Housing Administration), the monthly payments are still eye-popping and a big commitment,” Blase said.

“I also frequently get inquiries from serious buyers moving to the area who want to start out considering San Francisco proper, but then fan out their search and ‘drive until they can buy’ in some part of the Bay Area that is more affordable.”  

Historically, however, prices in California are more affordable than they have been in years, according to Leslie Appleton-Young, chief economist for the California Association of Realtors.

“California is still very affordable today compared to what it looked like a few years ago. There’s been a lot of competition for distressed properties. We have a lot of first-time buyers and a lot of investors active in our distressed market,” Appleton-Young said.

That view was echoed by San Diego sales associate Jennifer Brimhall.

“This downturn in our economy, coupled with all-time low interest rates, has made purchasing a home very desirable indeed for some. Those first-time homebuyers and investors are competing for entry-level-priced homes. So even though our ratios are high, the homes are more affordable than (in) recent years, and long-term San Diegans are buying,” Brimhall said.

“What is affecting business is job security and difficulty qualifying for jumbo loans for higher-priced homes. That market is very flat — more inventory, few buyers. Cash is king of course,” she added.

Top 10 most affordable metro areas

Metro Area
Share of homes affordable for median income
Median family income
Median sales price
Unemployment rate (July)
1. Syracuse, N.Y.
2. Springfield, Ohio
3. Mansfield, Ohio
4. Bay City, Mich.
5. Monroe, Mich.
6. Lansing-East Lansing, Mich.
7. Kokomo, Ind.
8. Elkhart-Goshen, Ind.
9. Cumberland, Md.-W.Va.
10. Canton-Massillon, Ohio

Top 10 least affordable metro areas

Metro Area
Share of homes affordable for median income
Median family income
Median sales price
Unemployment rate (July)
1. New York-White Plains-Wayne, N.Y.-N.J.
2. San Francisco-San Mateo-Redwood City, Calif.
3. San Luis Obispo-Paso Robles, Calif.
4. Santa Ana-Anaheim-Irvine, Calif.
5. Los Angeles-Long Beach-Glendale, Calif.
6. Honolulu, Hawaii
7. Santa Cruz-Watsonville, Calif.
8. Ocean City, N.J.
9. San Jose-Sunnyvale-Santa Clara, Calif.
10. San Diego-Carlsbad-San Marcos, Calif.

*Note: The unemployment rate for the Los Angeles-Long Beach-Santa Ana, Calif., metro area, as designated by the Bureau of Labor Statistics, has been applied here to both divisions that make up that MSA.

Sources: NAHB-Wells Fargo Housing Opportunity Index, HUD, CoreLogic, Bureau of Labor Statistics.