Affordability index dropping in Silicon Valley - Why is that a bad news for First-Time Buyers

California Association of Realtors (C.A.R.) measures First-time Buyer Housing Affordability Index (FTB-HAI) on a quarterly basis. This measures the percentage of households that can afford to purchase an entry-level home in California. The higher the index, more affordable it is for a first time buyer to buy a home. Before getting into the numbers, lets first quickly understand how it is calculated. The measurement is based on three main factors:

  1. Median Price of existing Single-Family homes (based on C.A.R.'s monthly existing home sales survey)
  2. Effective Interest Rate (based on the one-year, adjustable-rate mortgage (ARM) from Freddie Mac’s Primary Mortgage Market Survey)
  3. Median Household Income (Projected percent change obtained from Claritas)

As seen in chart below the index has been dropping in last 2 quarters after peaking in Q1, 2009.


Lets look at possible reasons for Santa Clara county:

  • The effective interest rate has been stable to lower over last 2 quarters, so that can not be a possible cause.
  • However, the median price of existing single family homes has steadily climbed form $448,750 in March 09 to $550,000 in June 09 to $553,000 in Sept 09.
  • Also the rising unemployment rate from 10.9% in March 09 to a current level of 11.8% could be a possible reason, as this affects possible change in median household income.

With both unemployment rate & median price of single family homes projected to go up in Q4 in Santa Clara county, we could see the First-Time Buyer affordability index slipping further.

Click here to read detailed First-Time Buyer housing affordability index methodology.

To download First-Time Buyer affordability index for all counties and regions in CA from 2000 to present click here

In my soon to be published book "Real Estate Unleashed" with co-author Carole Rodoni, we explore economic factors and how they affect Real Estate Industry. Send me an email at if you would like to be informed about it's release.

What are your views on this post? Feel free to post your comments below.

Originally posted at San Jose Home Loans, FHA Loans and Mortgage Rates.



Shashank Shekhar

Mortgage Broker/Banker | San Jose, CA

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Comment balloon 1 commentShashank Shekhar • November 29 2009 11:33AM


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