Thursday, August 23, 2007

Sacramento Housing Affordability Index



The National Association of Home Builders (NAHB) and Wells Fargo put out a quarterly affordability index. The data is available here. Here's their explanation of the index:

The Housing Opportunity Index (HOI) for a given area is defined as the share of homes sold in that area that would have been affordable to a family earning the local median income based on standard mortgage underwriting criteria...NAHB assumes that a family can afford to spend 28 percent of its gross income on housing; this is a conventional assumption in the lending industry...The monthly principal and interest that an owner would pay is based on the assumption of a 30 year fixed rate mortgage, with a loan for 90 percent of the sales price (i.e., 10 percent down payment). The interest rate is a weighted average of fixed and adjustable rates during that quarter, as reported by the Federal Housing Finance Board.
Peaking at 70.5% in the first quarter of 1998, the share of affordable homes in the Sacramento region plunged to 7.3% in the last quarter of 2005. Affordability has started to recover as home prices have fallen. It now stands at 15%. Any guesses as to how high the index will rise before home prices bottom out?

7 comments:

RMB said...

Somewhere back above 50% (probably about 60%) which will mean either a 50%(from the peak) decline in home prices or a 100% raise for everyone. Take your pick, these are the fundamentals that drive long term home prices not all of the other C*** that has been thrown around the last few years.

Sippn said...

Anybody remember the wealth inequity story from yesturday? That will keep the numbers from returning all the way back to 1997.

RMB said...

sippn,

that is a circluar argument. A large part of most people's wealth is tied up in real estate. Some if not most of the wealth gap is due to the run up in real estate. I think the opposite will hold true and as real estate price fall (due to market forces and not wishful thinking) the wealth inequality will shrink.

Could be horribliy wrong, but I don't think so.

smf said...

We don't really know where prices will end up at the end, because nothing like this has ever occurred.

Sure, we have had bubbles before, but nothing to the extent of this one, which we have to remember has been global.

A good question will have to be if we are going to see 'house dumping' in the near future.

Remember, there were more houses built than people available to occupy them.

ralphk said...

Just as there was a panic to buy which drove prices to abnormal highs, I believe ultimately there will be a panic to sell.

I think it's higly possible the sell panic will, at least temporarily, push prices below pre-bubble pricing.

Sooner or later one of the big REO holders will blink, and then the race to the bottom will be on.

paranoid renter said...

Just got an email from Lennar about a sealed bid event.
http://www.lennar.com/findhome/coupon.aspx?pid=2401
Need one of those for homes in Roseville.

jaye said...

Remember, there were more houses built than people available to occupy them.

And now there are more homes than people who have 20% down and can qualify! All the people who have lost their homes won't be buying another one anytime soon.