Industry cheerleaders will shout that today’s overheated pricing is all about “simple supply and demand.” Well, demand means having buyers who can actually afford to buy. ![]() That’s 3.1 points BELOW the inflation rate. inflation was 6.2% while this benchmark for mortgage rates - kept artificially low with Federal Reserve help - averaged 3.1%. So historically speaking, loans are usually priced 2.8 percentage points above these cost-of-living increases. inflation has averaged 2.2%, according to the Consumer Price Index, while rates on 30-year mortgages averaged 5%, according to Freddie Mac. One big reason is that inflation - an important factor in setting interest rates - is heating up. Still, the pandemic era’s buying binge - even with historically cheap money - sharply lowered the chance a typical Californian can become an owner.Īnd this shrinking affordability is even more troubling when mortgage rates seem destined to rise. That’s 2hen this spread was at its widest since 2007’s fourth quarter. homebuying affordability gap from the spring. Yes, this past summer produced a slight narrowing of this California-vs.-U.S. If those concerns reappear, the wide cost chasm should be worrisome for California’s housing market. I recall that affordability once seemed to matter. On a scale of zero bubbles (no bubble here) to five bubbles (five-alarm warning) … FIVE BUBBLES! Californians with the nerve to shop in those challenging times enjoyed a market with only 18% less affordability than the nation. That boosted California starter-home affordability to average a lofty 64% vs. Think about what happened in 2008-2012, just before, during and immediately after the ugly housing crash: slashed prices and low rates. So was California affordability ever relatively OK? In 2000-07, California offered 40% less affordability than the nation - not very far from 2021 levels. Let’s politely note that in that troublesome period for housing, a different kind of feeding frenzy set the stage for a horrific real estate flop. So just about anybody could qualify to buy!) ![]() (Of course, consider the loose lending terms of this period. Next, look at the bubble-building period of 2000-07 when 43% of Californians could afford a starter home vs. That’s 31% less affordability in the state, a smaller gap with the nation than today. Let’s start with the recovery from the Great Recession’s housing debacle - 2013-2019: An average 51% of Californians could afford a starter home vs. Yet the swings in these indexes can be worthwhile tools to see longer-term trends. I’m usually not a huge fan of affordability indexes as a measure of how many folks can actually buy a home. That spread can be a critical financial hurdle for folks pondering less-onerous housing deals in other states. A typical California first-time house hunter had 37% less affordability than a U.S. Ponder the gap between state and national costs. CAR’s math shows 67% of Americans could afford to buy a starter home in the third quarter using the same math - up from spring’s 66% but down from 71% before the pandemic.
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