With home prices increasing, and mortgage rates returning to a once normal level, many people are hopeful that the housing market will return to its pre-crisis highs. These are great signs that the housing market is rebounding, but they also indicate tough times ahead for some would-be buyers in California.
According to the Association of Realtors, only 44% of California residents were able to afford a median-priced home in the first quarter of this year. That’s a 12% decrease from the same period last year, when affordability was at its highest since 1988. With the expectation that these rates will decline even further throughout the year, it may be wise for agents and broker to start lowering would-be buyer’s expectations, and expanding their search if they want to close a deal.
As we previously reported last month on our story “Are First Time Buyers an Endangered Species“, one major reason affordability has decreased is due to the lack of first-time buyers. Many of these would-be buyers are coming out of college with little money, riddled with student loans, and have a hard time finding a job, let alone one which will pay them enough to buy a home. In fact, the California Association of Realtors reported that a buyer would need to make at least $66,800 annually to afford the median home priced at $350,490, which can be very hard to come by in an entry-level position.
Those that do make enough to buy are having a hard time competing with investors paying in cash. Although this is a common hardship for many buyers in California, individuals falling on the lower end of the income scale are the most vulnerable to this competition. Many of these first-time buyers rely on Federal Housing loans to purchase a home, but these loans only accounted for 19.4% of all mortgages in Southern California, which is a 9% decrease from a year before.
Obviously increases in prices and mortgage rates have been pushing out some potential buyers as well, but they have done little to deter investors.
The shortage of homes on the market has also been a hindrance for would-be buyers. With fewer homes available, competition has increased leading to bidding wars which have driven out many of many.
With the expectation that affordability will decrease even further and the existing competition for houses already on the market, now may be the right time to sell, especially for those with low-end houses. For those looking to buy, it may be necessary to start looking for homes across larger areas.
Have you been noticing a lack of affordability in your neighborhood? Is it affecting your business currently? What are your thoughts?