Home affordability in S.D. County at record high


FRIDAY, FEBRUARY 11, 2011 AT 4:44 P.M.

Home affordability for first-time buyers in the San Diego region reached a record-high last quarter, made possible by historically low lending rates and slight drops in median home price, according to an index from the California Association of Realtors late this week.

Sixty-two percent of first-timers in the region can afford starter homes, rising from 60 percent in the third quarter and 57 percent one year ago, the quarterly barometer shows. Last quarter’s figure was also the highest level of home affordability in the county in data going back to 2000.

By comparison, just 23 percent could afford that starter home in the second quarter of 2006, the all-time low for housing affordability in San Diego County.

“The reason for the new record has to do with the fact that home prices are considerably lower than those at the peak though they’ve edged up and hit bottom,” said Robert Kleinhenz, the association’s deputy chief economist. “Mortgage rateshave hit historic lows, the lowest in decades.”

After the California Association Realtors released its index on Thursday, Freddie Mac officials reported the average 30-year fixed rate jumped to 5.05 percent this week from 4.81 percent last week, the highest it’s been since May. (See the U-T’s coverage.)

While the increase will have a negative impact on affordability, “that’s a marginal increase,” said Kleinhenz, who predicts that lending rates will continue to climb steadily in 2011.

“Even a one-point increase will be near historic lows, in terms of mortgage rates,” he added.

Using the Realtors’ math, a first-timer last quarter had to earn an annual income of $50,100 to purchase a starter-home priced at $324,190. The monthly payment was $1,670, including taxes and insurance, and assuming a 10 percent down payment, and an adjustable interest rateof 3.39 percent.

That’s down from an adjustable interest rate of 5.76 percent in the spring of 2006, when an entry-level home was $521,118 and a first-time homebuyer had to earn $100,152 a year.

The index measures the percentage of local households able to afford a starter home — valued at 85 percent of the area’s median house price. The index assumes that buyers are making a 10 percent down payment and getting an adjustable-rate loan. The association considers its measure “the most-fundamental measure of housing well-being for first-time buyers.”

Last quarter’s income figures are down from the third quarter, when a San Diegan had to earn $52,200 for a starter-home priced at $329,470. The adjustable rate at that point was 3.66 percent.

Michael Lea, director of San Diego State University’s real estate center, takes issue with using adjustable rates in the index because most first-time homebuyers qualify for FHA loans. And for most, those loans are fixed rates, which tend to be more expensive.

Still, Lea agrees with the group’s general conclusions on home affordability for the county.

“It’s still a good time to buy from an affordability perspective,” Lea said.

Original article at http://www.signonsandiego.com/news/2011/feb/11/home-affordability-san-diego-county-all-time-high-/