As a result, 53.8% of all new and existing homes sold nationwide during the first three months of 2008 were affordable to families earning the median household income of $61,500, according to the latest Housing Opportunity Index released Tuesday by Wells Fargo and the National Association of Home Builders (NAHB).

That’s up from 44% during the first three months of 2007 with home prices the most affordable they’ve been since the three month period that ended June 30, 2004.

“Three factors combined to substantially increase housing affordability,” said NAHB president, Sandy Dunn, in a press release accompanying the report. “Mortgage rates returning to near the record low levels of a few years ago, a $2,500 rise in family income nationwide (from 2007 to 2008) and lower house prices.”

Home prices dropped about 8% compared with a year ago, according to NAHB, but that doesn’t mean that buyers are flocking back to the market.

“This measure can only take you so far in implications for the market,” said Dave Seiders, NAHB’s chief economist. “There’re several factors that the index does not capture.”

These include buyer expectations. Many are reluctant to act in falling markets. That sentiment can contribute to market overshoot, according to Seiders, in which prices fall lower than would be their logical bottom.

Richard DeKaser, who, as chief economist for national City Corp., runs his own affordability studies, pointed out that three main factors influence housing market trends: demographics, like more families moving into an area attracted by jobs; sentiment, the perception that the housing market is a good investment at any point in time; and affordability.

“While affordability is an important factor that will contribute to recovery of housing markets eventually,” he said, “improved affordability is unlikely to lift markets out on its own.”

Mortgage lenders playing hard to get
The index also fails to capture the tightening of lending standards, which has been quite dramatic during the past 12 months. The index presupposes constant lending standards.

But today, lenders are requiring much higher down payments, better financial documentation and higher credit scores than they did during the boom, cutting back on the number of potential buyers.

California has been particularly hard hit by a liquidity squeeze in jumbo loan markets. These mortgages of greater than the $417,000 cap limit that Freddie Mac and Fannie Mae imposed (now temporarily raised to $729,250) are especially important to high-priced markets.

“Jumbo markets had essentially shut down, ” said Seiders, “and many California markets depend on jumbo loans.” These are getting a little easier to find but they still cost a full 1 to 1.5 percentage points higher than other loans.

That has helped make Los Angeles, the least affordable metro area in the United States, more affordable than last year. But still, despite much lower home prices, to a median $412,000 from $525,000, only a little more than 10% of homes sold during the first quarter of 2008 were priced low enough so that households earning the median income of $59,800 in the area could buy.

That, however, is a change from a year ago when only 3% of Los Angeles area homes sold were affordable to the average Joe.

The affordability improvement was even greater for Santa Ana in Orange County, Calif. Helped by a median price drop to $470,000 from $610,000 a year ago there, 17.4% of homes sold were affordable, up from 4.4% during the first three months of 2007.

In San Diego, home affordability rose to 25.2% from 9.4% as prices dropped to $368,000 from $460,000; in Riverside, Calif. affordability went to 26.9% from 9.7% as prices fell to $288,000 from $380,000; and in Stockton, Calif., it soared to 35.5% from 9.7% as prices cratered to $262,000 from 390,000.

Below are stats for 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.

C.A.R. Region

Q1 2008

Q4 2007


Q1 2007








California – Condos






United States












Sacramento County






San Diego County