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Update: Q3 California Housing Affordability Index Holds Steady

Three months ago, I penned a blog post exploring C.A.R.’s quarterly Housing Affordability Index number asserting it is one of the best predictors of future prices in our statewide real estate market.

It has been a topic covered maybe yearly since the 2015 inception of this weekly South Bay real estate blog, but I believe it holds more weight due to the drastic drop in affordability this year.

As a result, I have committed to covering it every quarter until there is some relief in affordability.

Without sounding redundant for weekly readers, but also a key reference for new readers, please see last quarter’s post (Everyone should read it!) to freshen up on why the Housing Affordability Index matters.

Take a look: California Housing Affordability Index Might Be Flashing Warning Signs

Seriously, click and read it!

The 27% affordability number in Q1 and then the drop to 23% in Q2 was certainly concerning.

Below, I share the latest quarterly number from the California Association of Realtors (C.A.R).

Third Quarter HAI Rises Slightly

Last quarter’s big drop in affordability without question was a red flag.

If I am being honest, the three months following the last number has been one of the toughest markets for buyers that I have ever seen…and, I am sure many fellow agents would agree.

Thankfully, the difficulties that we are experiencing is not reflected in the actual numbers. The Housing Affordability Index actually ticked up by one point in Q3. A small improvement!

This is the 2021 breakdown:

  • Q1 – 27%
  • Q2 – 23%
  • Q3 – 24%

The official C.A.R. numbers are as follows:

  • Statewide median home price of $814,580
  • Minimum annual income needed to buy is $148,400
  • Based on a monthly PITI payment of $3,710 at a 3.07% rate
  • 24% of California households can buy the median-priced home

Diving Deeper Into the Numbers

If you re-read last quarters blog, you will note that the Housing Affordability Index numbers remain near some of the lowest levels dating back to 2007, which is uncomfortable.

While our local South Bay markets feel as if they are as hot as they have ever been, C.A.R. credited the one-point jump to a “slightly less competitive” housing market, lower interest rates in Q3 versus Q2, and a “modest” income growth.

The Los Angeles Metro area (City of Los Angeles), improved from 24% in Q2 to 26% in Q3.

However, the County of Los Angeles saw affordability drop from 22% in Q2 to 19% in Q3, which might explain why the South Bay has felt so tough for buyers.

Interesting note: C.A.R. states that Los Angeles County’s affordability improved in their summary notes, but the numbers posted show otherwise. I am not sure if it is a writer error or a numbers error. I will try to ask for clarity from them.

Conclusion

All in all, the number this quarter was a positive result, even if just a slight improvement.

According to history, the lower the affordability number, the more risk there is for a market correction. It seems with record high prices, there are still contributing factors (like rates, income growth, etc.) that are offsetting high prices.

Stabilization in the Housing Affordability Index or improvement over the next couple of quarters would be excellent news for all real estate market participants. A reversal and further decline in affordability would be a reason for concern.

I plan to bring you the updated Q4 numbers on this very important index and am excited to share an early blog post next week before the Thanksgiving holiday.

Cheers.

DRE: 01779425

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