Mending Fences – Buyer’s Affordability Index
Dear Margaret,
I tried to buy my first home four years ago, but the prices were too high. I recently heard that the Buyer’s Affordability Index is up. What does that mean and how does it affect my ability to buy a house now?
Jack in Monrovia
Dear Jack,
This is a great question since many buyers are seriously re-evaluating the real estate market. I remember back when rising prices made it very difficult for many first-time buyers to get into a house.
You asked about the Buyer’s Affordability Index, which to put it simply, measures the percentage of first-time buyers who are able to purchase a home in California. As prices decrease, the affordability margin increases.
Keeping that in mind, the current market offers new opportunities and you may be able to buy a home that was previously unavailable to you.
I recently read an article from the California Association of Realtors that clarifies how this new market can benefit both buyers and sellers. Some of the highlights were:
1. About 33% of households were able to afford their first home in the last quarter of 2007, which is up from 25% the year before.
2. As the median home price declines, many potential buyers find themselves in a position to buy an entry-level home.
3. Additionally, many existing homeowners are now able to sell and upgrade to their next home.
4. Affordability is based on the minimum household income required with a 10% down payment and an adjustable interest rate loan of 6.21%.
5. First-time buyers required an annual income of $82,200 to qualify in late 2007, down 15% as compared to $96,600 the year before.
6. The median price of an existing, single-family detached home in California in December 2007 was $475,460, a 16.5% decrease from the $569,350 median for December 2006.
So to answer your question, this is certainly a good time to consider buying a house. If you are ready to explore your options, contact a lender and a Realtor to restart the process. Don’t be afraid to make an offer and negotiate the price. You may find that the home you could not afford four years ago can be your dream home today.
Margaret Garemore has been a Realtor for nearly 12 years, and has served as an Arbitrator and Mediator for over five years. Email your questions to mgserv@aol.com or call (626) 483-4611.