Housing Affordability for First-Time Buyers Down in California

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Percentage measured according to newly developed index from CAR
Percentage measured according to newly developed index from CAR

RISMEDIA, August 18, 2006?The percentage of first-time buyers in California able to afford a median-priced home stood at 23 percent in the second quarter of 2006, compared with 30 percent for the same period a year ago, according to a newly developed index released today by the CALIFORNIA ASSOCIATION OF REALTORS(R) (C.A.R.).

C.A.R.’s First-time Buyer Housing Affordability Index (FTB-HAI) measures the percentage of first-time buyer households that can afford to purchase a home in California. C.A.R. also reports first-time buyer indexes for regions and select counties within the state. The Index is the most fundamental measure of housing well-being for first-time buyers in the state.

The minimum household income first-time buyers needed to purchase a home at $482,000 in California in the second quarter of 2006 was $98,720, based on an adjustable interest rate of 6.48 percent and assuming a 10 percent down payment. First-time buyers typically purchase a home equal to 85 percent of the prevailing median price. The monthly payment including taxes and insurance was $3,290 for the second quarter of 2006.

At 39 percent, the High Desert region was the most affordable C.A.R. region in the state, followed by the Sacramento region at 38 percent. Santa Barbara was the least affordable region in the state at 14 percent, followed by San Luis Obispo at 17 percent.

C.A.R. began producing its Housing Affordability Index (HAI) in 1984. At that time, fixed-rate mortgages were the prevailing form of financing a home purchase, while the calculations used to produce the HAI reflected a 20 percent down payment. The methodology also assumed a monthly payment for principal, interest, taxes and insurance that was no more than 30 percent of a household’s income.

In the more than two decades since the CALIFORNIA ASSOCIATION OF REALTORS(R) first conceived the HAI, the mortgage finance landscape has changed dramatically. The range of mortgage products available to buyers as well as underwriting criteria has changed.

C.A.R. developed the new index measuring affordability for first-time home buyers to better reflect the realities of today’s real estate market.

Quarterly FTB-HAI historical data from 2003 – 2006 is available on C.A.R. Online at http://www.car.org/index.php?id=MzY0ODU. A separate index reflecting affordability for repeat buyers will be released by C.A.R. later this year.

Leading the way…(R) in real estate news and information for more than 100 years, the CALIFORNIA ASSOCIATION OF REALTORS(R) (www.car.org) is one of the largest state trade organizations in the United States, with more than 195,000 members dedicated to the advancement of professionalism in real estate. C.A.R. is headquartered in Los Angeles.

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