The affordability of California homes is dropping rapidly as prices continue to soar and now higher interest rates are compounding the problem.
Housing ChartThe California Association of Realtors® (C.A.R.) reported today that its Home Affordability Index (HAI) dropped 8 percentage points from the first quarter of 2013 to the second.

This measures the percentage of homebuyers who can afford to purchase a median-priced single-family home in the the state.

Many homebuyers were shut out of the market during the quarter as home prices and interest rates rose. The affordability index fell from 44 percent in the first quarter to 36 percent in the second, the first time the index had dropped below 40 percent affordability rate since the third quarter of 2008.. During the second quarter of 2012 the index was at 51 percent.

In the second quarter the price of a median priced single-family home statewide was $415,770 compared to $316,490 a year earlier. The interest rate was 3.64 percent compared to 3.55 percent in the first quarter of 2013 and 2.82 percent in Q2 2012a. These increases meant that, to purchase that median priced home would require an annual income of $79,910 to qualify for a 30-year fixed rate mortgage including taxes and insurance and assuming a 20 percent down payment. The monthly payment on this mortgage would be $2000. As opposed to $62,440 which has the income needed in the  second quarter of 2012

Keep in mind that these figures don’t reflect the fact that interest rates have jumped almost a full point since then so affordability has dropped again.

In 2006,  that number was 23% . The lowest index for California since 1982 was 18% in May 1989 and again in June 2004.  So we have a way to go. This statistic is a good leading indicator of a market top.

C.A.R. Said nearly all regions of the state experienced sharp quarter-over-quarter declines in housing affordability,