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By: Sara Sutachan, Senior Research Analyst & Oscar Wei, Senior Research Analyst

Seasonally adjusted and annualized sales in the third quarter of 2009 increased to 537,690 units, up 1.7 percent from the previous quarter sales figure of 528,580 homes and up 7.7 percent from the year ago figure of 499,110 units. The size of the year-to-year percentage gains has been gradually diminishing since the beginning of this year, as sales level of 2008 continued to recover in the second half of the year. Although sales gains continue to be driven in part by large shares of deeply-discounted distressed sales in the low end of the market, the high end market has been improving. In fact, sales of million dollar homes in the last month of the quarter experienced their first year-to-year percent increase since the mid of 2007.
Even as home prices in California began to show some signs of stabilizing since hitting a recent quarterly bottom in the first quarter of 2009 at $247,800, the median price at $290,760 in the third quarter was still 15 percent below that of a year earlier. However, this was a far cry from the year-over-year price declines in the 30-40 percent range in the five consecutive quarters prior to the current quarter.
In the third quarter of 2009, lower prices across the state had sent affordability in the state to record high levels. C.A.R.’s First-time Buyer Housing Affordability Index (FTB-HAI), which measures the share of all households that can afford the entry-level home, hit 64 percent in California. That meant that nearly two-thirds (64 percent) of California’s households could afford a home at an entry-level price of $247,150 (defined as 85 percent of the median home price). While this affordability index only goes back to 2000, other affordability measures indicate that affordability has been at a historically high level in 2009 even compared to the 1980s and 1990s. In fact, the FTB-HAI reached a historic high in the first quarter of 2009 at 69. In other words, during the first three months of the year close to seven in 10 households could afford the entry-level home priced at $210,630. The index is calculated based on an entry-level home price, a 10 percent downpayment, an ARM effective composite rate, and a 40 percent debt-qualifying ratio.

The monthly mortgage payment including interest, taxes, and insurance (PITI) in the third quarter—based on a 10 percent downpayment and the prevailing mortgage rate of 4.79 percent—added up to $1,450. That is $340 less than the monthly PITI of $1,790 a year ago, when the entry-level home was priced at $290,490 and the mortgage rate was 5.30 percent. The FTB-HAI was nine points higher than the third quarter of 2008 when only 55 percent of the households were able to afford a home.

With lower prices and relatively low mortgage rates, affordability has improved dramatically in 2009, creating great opportunities for well-qualified buyers with a steady job and stable income situation. In addition, the extension of the Homebuyer Tax Credit will also make buying a home more affordable to home buyers in the coming months. However, constraints on inventory as well as the tighter underwriting standards and qualifying thresholds remain to be a huge barrier today’s housing market.

* This article is courtesy of the California Association of Realtors website.