Second quarter 2016 housing affordability

Strong seasonal home prices weaken housing affordability in second quarter

Minimum annual income required to purchase hits six digits for first time since Great Recession

• Thirty-one percent of California households could afford to purchase the $516,220 median-priced home in the second quarter, down from 34 percent in first-quarter 2016 and up from 30 percent in second-quarter 2015.

• A minimum annual income of $101,217 was needed to make monthly payments of $2,530, including principal, interest, and taxes on a 30-year fixed-rate mortgage at 3.85 percent interest rate.

• Forty percent of home buyers were able to purchase the $411,390 median-priced condo or townhome. An annual income of $80,663 was required to make a monthly payment of $2,017.

LOS ANGELES (Aug. 10) – Lower interest rates failed to offset strong seasonal price increases, making it harder for Californians to purchase a home in the second quarter of 2016, the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) said today.

The percentage of home buyers who could afford to purchase a median-priced, existing single-family home in California in second-quarter 2016 fell to 31 percent from the 34 percent recorded in the first quarter of 2016 and was up from 30 percent in second-quarter 2015, according to C.A.R.’s Traditional Housing Affordability Index (HAI). This is the 13th consecutive quarter that the index has been below 40 percent and is near the mid-2008 low level of 29 percent.  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.  C.A.R. also reports affordability indices for regions and select counties within the state.  The Index is considered the most fundamental measure of housing well-being for home buyers in the state.

Home buyers needed to earn a minimum annual income of $101,217 to qualify for the purchase of a $516,220 statewide median-priced, existing single-family home in the second quarter of 2016.  The monthly payment, including taxes and insurance on a 30-year, fixed-rate loan, would be $2,530, assuming a 20 percent down payment and an effective composite interest rate of 3.85 percent.  The effective composite interest rate in first-quarter 2016 was 4.01 percent and 3.95 percent in the second quarter of 2015. 

Homes were slightly more affordable in second-quarter 2016 compared to a year ago, when the affordability index stood at 30 and the median home price was $488,500. An annual income of $96,650 was needed to make monthly payments of $2,420. 

Condominiums and townhomes also were slightly less affordable than in the previous quarter. Forty percent of California households earned the minimum income to qualify for the purchase of a condominium or townhome in the second quarter of 2016, down from 41 percent in the first quarter of 2016. An annual income of 80,663 was required to make monthly payments of $2,017.

Key points from the second-quarter 2016 Housing Affordability report include:

• Compared to affordability in first-quarter 2016, 25 of 29 counties tracked saw a decrease in housing affordability, two experienced an improvement (Napa and San Luis Obispo), and two were unchanged (San Francisco and Madera).

• Seven of nine Bay Area counties recorded lower affordability numbers as did all six Southern California regions. Nine of 10 Central Valley counties and three of four Central Coast counties also saw lower affordability, compared to the previous quarter. 

• During the second quarter of 2016, the most affordable counties in California were Kings (56 percent); San Bernardino (56 percent); Kern (54 percent); and Fresno, Madera, and Tulare all at 50 percent.

• San Francisco (13 percent), San Mateo (14 percent), and Santa Cruz (17 percent) counties were the least affordable areas of the state.  

Housing Affordability slides (click link to open)

Affordability peak versus current
Annual required income peak vs. current
PITI peak versus current
Regional comparison (2006-2016)

Leading the way…® in California real estate for more than 110 years, the CALIFORNIA ASSOCIATION OF REALTORS® (www.car.org) is one of the largest state trade organizations in the United States with 185,000 members dedicated to the advancement of professionalism in real estate. C.A.R. is headquartered in Los Angeles.

CALIFORNIA ASSOCIATION OF REALTORS®
Traditional Housing Affordability Index
Second quarter 2016

C.A.R. Region	Housing Affordability Index	Median Home Price	Monthly Payment Including Taxes & Insurance	Minimum Qualifying Income
CA SFH	31	$        516,220	$              2,530	$       101,217
CA Condo/Townhomes	40	$        411,390	$              2,017	$         80,663
Los Angeles Metropolitan Area	33	$        470,330	$              2,305	$         92,219
Inland Empire	46	$        315,500	$              1,547	$         61,861
S.F. Bay Area	23	$        840,920	$              4,122	$       164,882
US	57	$        240,700	$              1,180	$         47,195
S.F. Bay Area
Alameda	20	$        825,700	$              4,047	$       161,898
Contra-Costa	32	$        628,150	$              3,079	$       123,164
Marin	18	$     1,225,000	$              6,005	$       240,190
Napa	25	$        630,000	$              3,088	$       123,526
San Francisco	13	$     1,375,000	$              6,740	$       269,601
San Mateo	14	$     1,330,000	$              6,519	$       260,778
Santa Clara	19	$     1,085,000	$              5,318	$       212,740
Solano	45	$        386,000	$              1,892	$         75,684
Sonoma	26	$        585,000	$              2,868	$       114,703
Southern California
Los Angeles	30	$        480,040	$              2,353	$         94,123
Orange County	22	$        742,220	$              3,638	$       145,530
Riverside County	41	$        355,320	$              1,742	$         69,669
San Bernardino	56	$        242,370	$              1,188	$         47,522
San Diego	26	$        589,910	$              2,892	$       115,666
Ventura	29	$        647,320	$              3,173	$       126,922
Central Coast
Monterey	25	$        535,000	$              2,622	$       104,899
San Luis Obispo	27	$        546,620	$              2,679	$       107,178
Santa Barbara	20	$        703,460	$              3,448	$       137,930
Santa Cruz	17	$        799,000	$              3,917	$       156,663
Central Valley
Fresno	50	$        235,020	$              1,152	$         46,081
Kern (Bakersfield)	54	$        228,950	$              1,122	$         44,891
Kings County	56	$        212,660	$              1,042	$         41,697
Madera	50	$        221,700	$              1,087	$         43,469
Merced	52	$        212,080	$              1,040	$         41,583
Placer County	46	$        438,490	$              2,149	$         85,976
Sacramento	45	$        323,710	$              1,587	$         63,471
San Joaquin	45	$        313,840	$              1,538	$         61,536
Stanislaus	48	$        271,940	$              1,333	$         53,320
Tulare	50	$        207,700	$              1,018	$         40,724

CALIFORNIA ASSOCIATION OF REALTORS®
Traditional Housing Affordability Index
Second quarter 2016

STATE/REGION/COUNTY	Q2 2016	Q1 2016		Q2 2015
CA SFH	31	34		30
CA Condo/Townhomes	40	41		39
Los Angeles Metropolitan Area	33	35		32
Inland Empire	46	48		46
S.F. Bay Area	23	27		23	R
US	57	60		57
S.F. Bay Area
Alameda	20	23		20	R
Contra-Costa	32	38		34	R
Marin	18	20		17
Napa	25	23	R	24	R
San Francisco	13	13		10
San Mateo	14	16		13
Santa Clara	19	22		19
Solano	45	48	R	46
Sonoma	26	28	R	27	R
Southern California
Los Angeles	30	31		30
Orange County	22	23		21
Riverside County	41	42		40
San Bernardino	56	57		56
San Diego	26	28		25
Ventura	29	30		25
Central Coast
Monterey	25	27		27
San Luis Obispo	27	26		28
Santa Barbara	20	21		15	R
Santa Cruz	17	18		20
Central Valley
Fresno	50	52		50
Kern (Bakersfield)	54	55		54	-
Kings County	56	58		62
Madera	50	50		50
Merced	52	55		55
Placer County	46	48		44
Sacramento	45	48		47
San Joaquin	45	47		37
Stanislaus	48	50		41
Tulare	50	52		54

R = revised

CALIFORNIA ASSOCIATION OF REALTORS®
Traditional Housing Affordability Index
Second quarter 2016

Fed not likely to increase interest rates "until December or later"

There are only three meetings left this year for the Federal Open Market Committee, and the likelihood they’ll raise interest rates above current levels looks slim, judging by the latest meeting minutes released on Wednesday.

National Association of Federal Credit Unions Chief Economist Curt Long explained that the FOMC minutes continue to reflect divisions within the committee.

“The constant refrain of 'data dependency' from Fed officials loses its meaning when there is no consensus on what the data means, much less which policy course is warranted,” said Long.

“Nevertheless, it seems safe to say that many of the committee’s fears were alleviated with the strong June jobs report and by Brexit’s lack of impact on financial markets,” he said. “With inflationary pressures yet to emerge, the Fed seems happy to play the waiting game as far as rate normalization is concerned.”

Long concluded that as a result, they “anticipate no rate hike until December or later.”

Genworth Mortgage Insurance Chief Economist Tian Liu also noted that today’s release of the FOMC minutes came after the strong job market report in July and diminished volatility in the financial market. 

“We believe the FOMC will continue to pay close attention to incoming economic data, especially the August jobs report.  For the 30-year mortgage rate, the pace of future rate increases is more important than the timing of the next rate increase, and today’s minute does not indicate an acceleration.”  

The minutes did shed some light on the committee’s thoughts surrounding Brexit stating:

Overall, negative sentiment surrounding the Brexit out- come early in the intermeeting period was subsequently alleviated by expectations for greater policy accommodation in some AFEs, some resolution of near-term political uncertainty in the United Kingdom, and positive U.S. economic data releases. Nevertheless, several longer-term global risks related to Brexit remained.

However, the minutes mostly reiterated much of the same information the market already knows.

From the minutes:

With respect to the economic outlook and its implications for monetary policy, members continued to expect that, with gradual adjustments in the stance of monetary policy, economic activity would expand at a moderate pace and labor market indicators would strengthen.

Directly after the meeting in July, the FOMC announced it choose to keep the federal funds rate between 0.25% and 0.5%, which is the same level as when the Fed originally announced it would raise rates back in December.

Courtesy of Brena Swanson Housing Wire:  http://www.housingwire.com/articles/37809-fed-not-likely-to-increase-interest-rates-until-december-or-later?eid=311685553&bid=1501400

Home Price Gains Continue in Most U.S. Metros in Mid-2016

According to the latest quarterly report by the National Association of Realtors, U.S. home prices maintained their robust, upward trajectory in a vast majority of metro areas during the second quarter, causing affordability to slightly decline despite mortgage rates hovering at lows not seen in over three years. The report also revealed that for the first time ever, a metro area - San Jose, California had a median single-family home price above $1 million.

The median existing single-family home price increased in 83 percent of measured markets, with 148 out of 178 metropolitan statistical areas (MSAs) showing gains based on closed sales in the second quarter compared with the second quarter of 2015. Twenty-nine areas (16 percent) recorded lower median prices from a year earlier.

There were slightly fewer rising markets in the second quarter compared to the first three months of this year, when price gains were recorded in 87 percent of metro areas. Twenty-five metro areas in the second quarter (14 percent) experienced double-digit increases - a small decrease from the 28 metro areas in the first quarter. A year ago, 34 metro areas (19 percent) experienced double-digit price gains.

Lawrence Yun

Lawrence Yun, NAR chief economist, says a faster pace of home sales amidst languishing inventory levels pushed home prices higher in most metro areas during the second quarter. "Steadily improving local job markets and mortgage rates teetering close to all-time lows brought buyers out in force in many large and middle-tier cities," he said. "However, with homebuilding activity still failing to keep up with demand and not enough current homeowners putting their home up for sale, prices continued their strong ascent - and in many markets at a rate well above income growth."

The national median existing single-family home price in the second quarter was $240,700, up 4.9 percent from the second quarter of 2015 ($229,400), which was previously the peak quarterly median sales price. The median price during the first quarter of this year increased 6.1 percent from the first quarter of 2015.  

Courtesy of World Property Journal:  http://www.worldpropertyjournal.com/real-estate-news/united-states/san-jose/median-home-prices-2016-national-association-of-realtors-lawrence-yun-existing-home-sales-housing-inventory-2016-nar-9981.php