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Affordability drops to 10-year low in Q2 despite pay gains

Affordability drops to 10-year low in Q2 despite pay gains

By Ron Trujillo/

Higher interest rates and home prices closed the door on more consumers looking to become homeowners during the second quarter, as affordability dropped to the lowest level in 10 years.

Only 26% of households in the state could afford to buy the $596,730 median-priced home in the state, compared to a 31% in the first quarter and 29% a year ago, according to the California Association of Realtors. Housing affordability has remained below 40% for 21-consecutive quarters — or more than five years –after reaching a high of 56% in 2012.

The Bay Area was the least affordable market in the state, with where only 14% of consumers in San Francisco and San Mateo counties could afford to buy in the region. Ironically, both counties enjoyed a slight increase in affordability during the second quarter, compared to the 15% in first-quarter 2018, thanks largely to higher wage gains.

In areas where pay gains were more modest, affordability dropped to 10-year-lows, most notably in Orange, Riverside, Sacramento, San Bernardino, San Diego, Santa Clara, Santa Cruz and Sonoma.

A minimum annual income of $126,490 was needed to qualify to buy a home statewide. The monthly payment, including taxes and insurance on a 30-year, fixed-rate rate loan would be $3,160, based on 20% down payment and an interest rate of 4.70%. Of course, the estimate can change based on the credit rating and debt of the homebuyer.

The most affordable counties were Lassen at 64%, Kern and Madera at 53% and 52%, respectively. Kern County has been battling its own mini-recession as the oil industry battles low crude prices and has been cutting back on workers.

Affordability by county and income needed to purchase median-priced home:

San Francisco

14%; $344,440


20%; $175,930

Los Angeles

26%; $118,110


41%; $79,270

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