Tuesday, February 24, 2009

Sacramento Housing Affordability Index 1991-2008

The National Association of Home Builders recently updated their housing affordability index which measures the share of homes affordable to those with median income. (More on methodology here) Thanks to Neil, I've pushed the chart back to 1991 for a bit more perspective. In the fourth quarter of 2008, affordability in the Sacramento region was 66%, up from a low of 7% in the last quarter of 2005. That puts the index just under the 1990s high of 71% reached in the first quarter of 1998. During the 1990s, this measure of affordability remained over 50% for 7 years.


Buying Time said...

This is truly fantastic news! The media tends to focus on the sob stories of people losing their homes....but this is a much more important aspect of the story that is rarely told. The return of average Americans being able to afford average homes.

Now that I bought a home, affordability is back on track, and Lander is slowly closing up shop...not sure what to do with myself!

anon1137 said...

These figures are based on recent sales which, for Sacramento, means cheap, foreclosed homes w/o cabinets or appliances, in undesirable neighborhoods that are being sold to investors by the six-pack.

Woo-hoo!! More average families can afford the median-priced Sacramento home!

It's going to take at least another 5 years to get the fluff out of this market. We're just starting to peel away the fraud premium and the fluff is now coming into view.

Cow_tipping said...

That is wonderful. How is the unemployed people's median income factored in.
Again meaningless numbers because in 1998 there actually was close to 3-4% unemployment in sacramento region right.
I see prices getting slashed by builders, who promptly try to snare a few clueless new comers by saying we've cut the $ 40K. 1, what about those people who bought last month. 2, Are you likely to do it again ? no, really ? would you pay me the difference if you do. 3, was the $ originally worth it to begin with.

Husmanen said...

Although the median is being pushed by the undesirable areas they are having an impact on the entire market.

And, yes, their is a lag too, but the trends are all towards greater affordability and returning to the mean. We will probably have an overshoot too.

First it was just subprime, then financials, now the entire economy.

Timewise, I believe I read somewhere that it took five years to reach the peak and only 18 months to crush a large part of it (depending on market).

Affordability is coming, maybe sooner than later.

Jacob said...

I agree that median prices are not the best or perfect metric in any way. But whatever metric you use, median, average, price per ft2 etc, they are all trending in the same direction.

Looking at the criteria for the affordability index it looks like they do cap it at the 28% of gross income which is good, but they also assume the buyers have 10% to put down.

What percentage of first time buyers have that much to put down?

Also of the percent of buyers that could afford a home, what percent will not be able to get financing?

So the actual percent of affordability is lower. And that is before you remove the cheap homes in areas that most median income earners would never consider buying in and the number will be lower still.

But it is moving in the right direction.

And that 5 years of shadow inventors is something to think about. Once we finally do get to the bottom there will be plenty of time to buy while the excess is absorbed over the next 10-15 years.

Just in time for all the boomers to try and sell their homes as well.

patient renter said...

It seems to me the methodology is lacking since it simply uses sales prices without any knowledge of the house that sold.

As is the case right now, sales are being dominated by low-end cheap'ish REOs making affordability appear good in the context of what has sold. If mostly high priced homes were being sold affordability would look bad. Again, the methodology is lacking.

Cow_tipping said...

Also what percentage is going to specu-invest-slumlords.
In the washington DC area 90+% of the cheapo row/town houses are going to slumlords who are literally paying for it in cash. realt-hores are saying that after30 years in the business and selling million $ McMansions, they have never seen so much cash ... says somehting about the last 30 years as well as who's buying them now. Anyway, can you say shadow inventory both on rental and on resale market when the market is "poised to return".

Deflationary Jane said...

When did the NAR change their affordability index to use an ARM and did they change it back? That'll make a big difference.

The other thing is a 115k house in 97 was hella nicer then a 115k house today by a long shot.

soooo not buying this data.

Lander said...

This is NAHB data not NAR. As far as I know, NAHB has not changed their methodology (based on 30-year fixed). Yes NAR/CAR changed their methodology back in 2006 to include the very loans (ARMs) that got us into this mess.

Deflationary Jane said...

Opps! thanks Lander for the NAHB vs. NAR corrction. The other comment still stands.

Sam Stone said...

There's definitely no perfect metric and you can never really expect one for issues this complicated.

Just because the cost of prices are going down, are they really becoming more affordable in sum? What about ever increasing unemployment. It will definitely have a trickle down effect on wages.

Thanks for the post.


Alan Barker said...

That's incredible that less than 10% of people were able to afford homes when it was at its peak. Housing is definitely more affordable in the Sacramento Area. The same trend is happening with Washington DC Real Estate.