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:

  1. Median Price of existing Single-Family homes (based on C.A.R.’s monthly existing home sales survey)
  2. Effective Interest Rate (based on the one-year, adjustable-rate mortgage (ARM) from Freddie Mac Primary Mortgage Market Survey)
  3. 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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