Over the last few years, we have watched the Affordability Index dip lower and lower, signaling how out of reach real estate purchase was becoming for average people and first-time buyers as price careened skyward in L. A. County and environs. In 2006 and 2007, I remember it dropping to around 13%. This index indicates the percentage of buyers able to purchase the median-priced home with 10% down.
13% is abysmal. That percentage told all of us professionals we were in deep trouble and more trouble lay ahead. In that environment, only those already home owners could afford to buy. Only other already home owners could afford to buy from them. As a result, we had several years of dizzying frenzy as more and more buyers fell off the merry-go-round. To mix metaphors, it was really a game of musical chairs. Finally, only 13% were left.
But, this week California Association of Realtors [CAR] announced some joyous news in the midst of the general doom and gloom. Now, the Affordability Index is 33%, a dramatic jump of 66% over last year. Buyers previously needed an income of $100,000 and 10% down to buy the median L.A. County home of $583,670. Now, buyers need an income of $74,320 to buy a home costing $390,450.
That comes about as a result of home prices forced dramatically lower by a spate of foreclosures. It’s now possible to find many homes in Azusa and Pomona, for example, along with other nearby areas in the $250,000-$300000 range, well below the median home for the county. Because of the foreclosures, all homes in every price range have seen their prices pushed lower.
This is a bitter pill for those of us who are already homeowners, but clearly a 13% affordibility index was unsustainable. To remain healthy, the market needs first-time buyers. Ideally, first-timers should represent about 30% of the market, a point we are rapidly approaching in L. A. County.
First-time buyers and those seeking homes under $500,000 are behind a 22 percent increase in home sales in the six-county Southern California region between March and April, according to a report issued Monday by DataQuick Information Systems. The report said two-thirds of homes sold were priced at less than $500,000.