Housing affordability in California set a new record high in first quarter 2012 rising to 56 percent, according to C.A.R.’s first quarter Housing Affordability Index. The increase can be attributed to record-low interest rates and stabilization in home prices.

The percentage of home buyers who could afford to purchase a median-priced, existing single-family home in California rose to 56 percent in the first quarter of 2012, up from 55 percent in fourth-quarter 2011 and from 53 percent in first quarter 2011, according to C.A.R.’s Traditional Housing Affordability Index (HAI). The index was the highest since C.A.R. began tracking this statistic in 1988.

Home buyers needed to earn a minimum annual income of $55,688* (based on fourth quarter 2011 income data) to qualify for the purchase of a $276,040 statewide median-priced, existing single-family home in the first quarter of 2012. The monthly payment, including taxes and insurance on a 30-year fixed-rate loan, would be $1,392, assuming a 20 percent down payment and an effective composite interest rate of 4.16 percent. The effective composite interest rate in fourth-quarter 2011 was 4.30 percent and 4.90 percent in the first quarter of 2011.

In the San Francisco Bay Area, housing affordability rose or remained stable in all counties except Contra Costa County, where affordability declined by one percentage point. At 78 percent, San Bernardino County was the most affordable, while San Francisco County was the least affordable, with only 29 percent of households able to purchase the county’s median-priced home.

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On a statewide basis, the National Association of Home Builders/Wells Fargo Housing Market Index (HOI) found that a family earning the median income could have afforded 66.2 percent of the new and existing homes that were sold during the fourth quarter, up from 63.5 percent in the third quarter. It was the highest statewide affordability level recorded since the California-specific HOI began in 2007, with the previous high being set in the first quarter of 2011 at a level of 64.6 percent. In contrast, the lowest statewide level was recorded with the inaugural state index in the first quarter of 2007 with an affordability reading of 11.2 percent.

The San Francisco, San Mateo, and Marin County metro area was California’s least affordable metro area for the 13th consecutive quarter with 37.1 percent of the homes sold being affordable to a family earning the median income, up from 32.9 percent in the third quarter. Orange County was California’s second-least affordable market at 47.4 percent, followed by Los Angeles County, 48.3 percent, as the state’s third-least affordable market.

Sutter and Yuba counties were California’s most affordable metro area with 92.5 percent affordability, up from 89.3 percent in the third quarter. Stanislaus County was the state’s second-most affordable market with 91.5 percent affordability, followed by Merced County with 91.2 percent affordability.

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California’s housing affordability rose to its highest level in fourth-quarter 2011, matching a record high set in 2009, thanks to lower home prices and record-low interest rates, C.A.R. recently reported.

The percentage of home buyers who could afford to purchase a median-priced, existing single-family home in California rose to 55 percent in the fourth quarter of 2011, up from 52 percent in third-quarter 2011 and from 50 percent in the fourth quarter of 2010, according to C.A.R.’s Traditional Housing Affordability Index (HAI).  The index was the highest since C.A.R. began tracking this statistic in 1988, and equaled a high set in first-quarter 2009.

Home buyers needed to earn a minimum annual income of $57,750 to qualify for the purchase of a $282,350 statewide median-priced, existing single-family home in the fourth quarter of 2011.

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Housing affordability increased in 22 of the state’s 28 metropolitan areas in the third quarter, according to the California Building Industry Association’s Housing Opportunity Index (HOI)

On a statewide basis, the HOI found that a family earning the median income could have afforded 63.5 percent of the new and existing homes that were sold during the third quarter, up from 61.3 percent in the second quarter.

The San Francisco, San Mateo and Marin County metro area was once again California’s least-affordable metro area for the twelfth consecutive quarter, and second in the nation, with just 32.9 percent of the homes sold being affordable to a family earning the median income, up from 27.5 percent in the second quarter. Orange County was California’s second least-affordable market and fifth in the nation (43 percent), followed by Los Angeles County (45.1 percent) and Santa Cruz County (47 percent).

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The percentage of home buyers who could afford to purchase a median-priced, existing single-family home in California rose to 52 percent in the third quarter of 2011, up from 51 percent in second-quarter 2011 and was up from 46 percent in the third quarter of 2010, according to C.A.R.’s Traditional Housing Affordability Index (HAI). 

Home buyers needed to earn a minimum annual income of $61,530 to qualify for the purchase of a $292,120 statewide median-priced, existing single-family home in the third quarter of 2011.  The monthly payment, including taxes and insurance, would be $1,540, assuming a 20 percent down payment and an effective composite interest rate of 4.63 percent.  The effective composite interest rate in second-quarter 2011 was 4.85 percent and 4.78 percent in the third quarter of 2010.

Regionally, housing affordability rose in most counties in the San Francisco Bay Area but was down in Los Angeles County and Fresno County.  At 77 percent, San Bernardino County was the most affordable, while San Mateo County was the least affordable, with only 25 percent of households able to purchase the county’s median-priced home.   

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Housing affordability fell throughout most areas of the state in the second quarter of 2011, primarily due to a seasonal increase in home prices, C.A.R. recently reported.

The percentage of buyers who could afford to purchase a median-priced, single-family home in California declined to 51 percent in the second quarter of 2011, down from 53 percent in first-quarter 2011 but was up from 46 percent in the second quarter of 2010, according to C.A.R.’s Traditional Housing Affordability Index (HAI). 

“The pending cut in the Fannie Mae/Freddie Mac high cost loan limits will make it harder and more expensive for those who live in high cost areas to purchase a home,” said C.A.R. President Beth L. Peerce.  “Buyers who plan to finance their home purchase with a mortgage of $625,500 or more will face higher interest rates, higher down payments, and tighter loan qualification requirements beginning October 1.  Those in a position to buy should act before the loan limits are reduced,” Peerce noted.

Regionally, housing affordability fell in the higher-priced areas of the state, such as the San Francisco Bay Area and Central Coast, but edged up in lower-priced areas, such as the Central Valley.  At 77 percent, San Bernardino County was the most affordable, while San Mateo County was the least affordable, with only 21 percent of households able to afford the county’s median-priced home.

The latest Rent vs. Buy Index by Trulia shows that buying a two-bedroom apartment, condominium, or townhouse is more affordable than renting in 80 percent of the 50 largest cities in the U.S.  Only in New York, Fort Worth, and Kansas City was renting a less costly option compared with buying.

Key findings include:

• Current market conditions consisting of steadily rising rents, falling home prices and low mortgage rates have tipped the rent versus buy scale in favor of homeownership.
• Price:Rent ratios in Fresno, Omaha, and San Jose experienced the largest quarter-over-quarter movement in favor of homeownership.

Aspiring homeowners in Los Angeles, Seattle, Boston, San Francisco, Portland, and Oakland face a bigger challenge when it comes to deciding between renting and buying a home. The cost of homeownership in these coastal cities continues to be more expensive than renting; however, it may make more financial sense to buy depending on the situation.

A Supplemental Directive has been issued for the Home Affordable Foreclosure Alternatives Program, which provides policy enhancements to the Home Affordable Foreclosure Alternatives (HAFA) program and amends and supersedes sections of the Making Home Affordable (MHA) Program Handbook for Servicers of Non-GSE Mortgages, version 3.0, dated as of Dec. 2, 2010. The policy enhancements to HAFA set forth in the directive have an effective date of Feb. 1, 2011; however, servicers may begin to implement the changes outlined in the directive earlier if they comply with the terms for such implementation set forth in the directive.

Among the updates includes changes to real estate brokerage commissions.  With respect to Short Sale Agreement (SSA) transactions, the real estate commission that may be paid shall be the amount indicated in the listing agreement between the borrower and the listing broker, provided that such commission shall not exceed 6 percent of the contract sales price. When the servicer has retained a contractor to assist the listing broker with the transaction, the servicer must include a statement in the SSA that any associated vendor fees will not be charged to the borrower or deducted from the real estate commission.

With respect to Alternative Request for Approval of Short Sale Alternative (RASS) transactions, when the servicer has retained a contractor to assist the listing broker with completion of the transaction, the servicer must include a statement in the Alternative RASS form that any associated vendor fees will not be charged to the borrower or deducted from the real estate commission.

The directive also covers the following topics:

• Monthly Gross Income
• Vacant Property
• Release of Subordinate Liens
• Timing for Issuance of Short Sale Agreement
• Timing for Response to Alternative Request for Approval of Short Sale
• Alternative Deed-in-Lieu Programs
• Borrower Notices
• Retroactivity
• Reporting
• Compliance

Servicers that have executed a servicer participation agreement (SPA) and related documents must follow the updated guidance in the directive by the effective date. The guidance in the directive, however, does not apply to first lien mortgage loans that are owned or guaranteed by Fannie Mae or Freddie Mac, or insured or guaranteed by a federal agency, such as the Federal Housing Administration (FHA), Veterans Administration (VA), or the Dept. of Agriculture’s Rural Housing Service (RHA).