California Association of Realtors’ First-time Buyer Housing Affordability Index measures the percentage of households that can afford to purchase an entry-level home in California. This Index measures housing well-being for first-time buyers. In the first quarter of 2010 this index Remain near an all time high at 66 percent in California. This means that 66%, or two-thirds, of all households could afford a home with an entry-level price of $246,240. The First Time Home Buyer Affordability Index is based on an entry level price, a 10% down payment, an ARM effective composite interest rate, and a 40 percent debt to income ratio. The index hit an all time high of 69 percent in the first quarter of 2009 when prices in much of the state bottomed out.
Results of the recent homebuyer survey showed that while the home buyer tax credit was a factor in the decision to purchase a home, it was not the only factor. Most survey respondents stated that price declines and the ability to secure favorable pricing and interest rates were the primary driving force in their home buying decision.
Santa Clara County First Time Home Buyer Affordability Index
While housing in Santa Clara County, including Palo Alto, is more expensive than the average for the state of California, the affordability index has more than doubled reaching 55 percent in the first quarter of 2010. This is up from the 2nd and 3rd quarter of 2007 when the first time home buyer affordablility index reached a record low of 25%. The index reached a high of 62% in the 1st quarter of 2009.
The bottom line for buyers is that with prices remaining at levels well below those of a few years ago and historically low mortgage rates, the current affordability is very favorable. These home buyer fundamentals should continue to drive demand for housing in California, even as the state and federal tax credits come to an end.
If you are thinking about buying your first home, please contact Gwen for a complimentary ebook on “8 Steps To Your First Home”.