More Homes and Condo Foreclosures, Higher Affordability

by on States

According to the California Association of Realtors, the percentage of Orange County households which can afford to buy a starter home has increased 300 times since 2003, the last year when home affordability levels were at its highest. It leaves one to wonder if the inventory of homes and condo foreclosures has an impact on home affordability.

For the last quarter of last year, 60 percent of households in the said county can actually afford to purchase a typical home. In 2006, it was just 21 percent, the lowest level in terms of housing affordability. Of course, one of the main reasons can be attributed to the lower interest rates as well as falling home prices due to the large volume of foreclosed homes for sale in California, including Irvine foreclosures for sale.

Based on the report, a household simply needs to earn $63, 000 per year to afford an entry-level home priced at $409, 000. Monthly payments can amount to just $2,100. For buyers looking for an even cheaper home, condo foreclosures can always be considered.

CAR’s affordability index simply measures how many households can afford a starter unit that is usually worth 85 percent of the median home price. It then assumes the buyer can pay at least 10 percent in down payment and approved for an adjustable mortgage loan. The index is considered to be the most essential measure in terms of housing well being specific for first time home buyers.

Meanwhile, Moody’s analytics showed that the ration of housing prices to annual income per household reached its peak in 2005 at 2.3. But in September, the said ratio dropped to 1.6, probably the lowest level in about 35 years.

The CAR index was designed to estimate roughly the number of residents who can afford to buy a starter home. It also tracks trends resulting from declining home prices and lower interest rates. At present, home prices are being adversely affected by cheap houses and condo foreclosures usually sold at foreclosure sales.

Interest rates, on the other hand, have been rising in the past weeks, which could have dragged the number of households that can afford a home down. Average 30-year home loan interest rate climbed to 5 percent in recent weeks, based on a survey conducted by Freddie Mac.