Pasadena Real Estate Blog

LOS ANGELES (May 20)—The percentage of households that could afford to buy an entry-level home in California stood at 44 percent in the first quarter of 2008, compared with 26 percent for the same period a year ago, according to a report released today by the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.).

First-time Buyer Housing Affordability Index (FTB-HAI) measures the percentage of households that can afford to purchase an entry-level home in California. C.A.R. also reports first-time buyer indexes for regions and select counties within the state. The Index is the most fundamental measure of housing well-being for first-time buyers in the state.

The minimum household income needed to purchase an entry-level home at $356,350 in California in the first quarter of 2008 was $67,830, based on an adjustable interest rate of 5.65 percent and assuming a 10 percent down payment. First-time buyers typically purchase a home equal to 85 percent of the prevailing median price. The monthly payment including taxes and insurance was $2,260 for the first quarter of 2008.

At $67,830, the minimum qualifying income was 30 percent lower than a year earlier when households needed $96,500 to qualify for a loan on an entry-level home. Recent decreases in home prices and mortgage rates have brought affordability into better alignment with income levels of the typical California household, where the median household income was $50,700.

The First-time Buyer Housing Affordability Index rose 11 percent in the first quarter of this year compared to the fourth quarter of 2007 due to a .56 point decrease in the mortgage rate and a 14.3 percent decrease in the entry-level median home price.

In Los Angeles County, the First-time Buyer Housing Affordability Index rose 8 percent in the first quarter of this year, compared to the last quarter of 2007, and 14 percent over the first quarter of 2007. This means that in L.A. County, with the median price of a home at $390,450, a buyer would pay $2,480 in monthly payments including taxes and insurance, and have to have a minimum qualifying income of $74,320.

This is the plus side of a down market. More buyers can come into the market, which will eventually make the market healthy again.