Affordability Index Dropping in Santa Clara – Why is that a bad news for First-Time Buyers
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I am the author of this blog and also a top-producing Loan Officer and CEO of InstaMortgage Inc, the fastest-growing mortgage company in America. All the advice is based on my experience of helping thousands of homebuyers and homeowners. We are a mortgage company and will help you with all your mortgage needs. Unlike lead generation websites, we do not sell your information to multiple lenders or third-party companies.
Affordability Index has been dropping in Santa Clara county. California Association of Realtors (C.A.R.) measures First-time Buyer Housing Affordability Index (FTB-HAI) on a quarterly basis. This measures the percentage of households that can afford to purchase an entry-level home in California. The higher the index, more affordable it is for a first time buyer to buy a home. Before getting into the numbers, lets first quickly understand how it is calculated. The measurement is based on three main factors:
- Median Price of existing Single-Family homes (based on C.A.R.’s monthly existing home sales survey)
- Effective Interest Rate (based on the one-year, adjustable-rate mortgage (ARM) from Freddie Mac Primary Mortgage Market Survey)
- Median Household Income (Projected percent change obtained from Claritas)
As seen in chart below the index has been dropping in last 2 quarters in Silicon Valley after peaking in Q1, 2009.
Lets look at possible reasons for Santa Clara county:
- The effective interest rate has been stable to lower over last 2 quarters, so that can not be a possible cause.
- However, the median price of existing single family homes has steadily climbed form $448,750 in March 09 to $550,000 in June 09 to $553,000 in Sept 09.
- Also the rising unemployment rate from 10.9% in March 09 to a current level of 11.8% could be a possible reason, as this affects possible change in median household income.
With both unemployment rate & median price of single family homes projected to go up in Q4 in Santa Clara county, we could see the First-Time Buyer affordability index slipping further.
To read detailed First-Time Buyer housing affordability index methodology.
To download First-Time Buyer affordability index for all counties and regions in CA from 2000 to present
In my soon to be published book “Real Estate Unleashed” with co-author Carole Rodoni, we explore economic factors and how they affect Real Estate Industry. Send me an email at [email protected] if you would like to be informed about it’s release.
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