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San Diego’s home affordability index increased to the highest level in years in the second quarter of 2009. This was good news for first-time home buyers who managed to realize their dream of home ownership. The median price of homes in San Diego CA was $295,000 in the second quarter 2009, down from $369,700 in the second quarter of 2008. Assuming a purchase price of 85% of the median home price, 59% of San Diego households (with a minimum income of $52,550) can now afford to buy an entry-level home. This affordability ratio is up from 46% in 2008 and only 23% in 2007.

The affordability index in San Diego is coming back into line with California as a whole. The median price of all homes in California at the end of the second quarter 2009 was $224,180, down from $329,120 in the second quarter of 2008. Again assuming a purchase price of 85% of the median, 67% of California households can now afford to buy a home in the state, up from 48% in 2008. The median price differential of $70,820 ($295,000 minus $224,000) seems sustainable considering the many advantages that San Diego County enjoys over other counties in California, including the perfect weather and relatively strong economy. Plus, San Diego’s affordability index of 59% remains better indexes of 56% in Los Angeles, 55% in San Francisco, and 53% in Orange County.

Compared to the United States as a whole, California still commands higher median home prices. The median price of a home in the U.S. was $147,990 at the end of second quarter 2009, down from $175,530 at the end of second quarter 2008. Using the same affordability standard of 85% of the median price, 76% of households in the U.S. can afford to buy homes (minimum income $26,360), up from 67% at the end of the second quarter 2008.

A family buying a median-priced home in San Diego for $295,000 would have an estimated monthly house payment (including mortgage, taxes, and insurance) of $1,750. At the 2008 median price of $369,700 the monthly house payment would have been around $2,269. That $500/month differential has made all the difference to prospective home buyers, as buying a median-priced home in San Diego is now more affordable than most rents in the area. Add the mortgage interest deduction, and the median priced home-buyer in San Diego can now expect to be ahead of the game after taxes.

In recent months it has gotten more and more difficult to find entry-level homes at the median price point. There has been a persistent shortage of inventory of homes for sale in San Diego since January 2009, and the result has been heavy competition, quick sales, and overbidding by desperate home buyers. The median price of homes in San Diego was as low as $280,000 in January 2009, and has steadily risen to $314,250 in June, and still further in July. A large release of more San Diego foreclosure properties out of the bank inventories is expected in September and October, and this should slow the rate of median price appreciation for the remainder of the 2009.

Low interest rates combined with the reduced prices have effectively resurrected the San Diego entry-level housing market. Sales of San Diego luxury homes are lagging, and the inventories of homes for sale in Rancho Santa Fe, La Jolla, Del Mar, and other high-end neighborhoods has continued to grow. The upper-level homes have also come down in price, but the mortgage market has prevented the kind of recovery that is being experienced at the lower end. Jumbo loans carry higher interest rates and more difficult qualification standards. This contrasts sharply with the looser standards and lower rates for FHA loans and conforming loans up to $697,500 in San Diego County. Banks could learn a lesson from the resurgence of demand at the lower end, and loosen jumbo loan standards in order to similarly stimulate demand and support prices at the upper end.

7 Responses

  1. It still seems to be a buyers market today. more and more people seem to be getting desperate and selling their homes for much less than they were currently worth…

  2. The index coming back to line is a good sign for the buyers. I wish there should not be another market crash like we had in recent times affecting every part and parcel of the economy. Also buyers should be aware of the hidden costs in foreclosure listings.


    1. The affordability index has slipped a bit in San Diego since I wrote this article. Median prices have been rising for all of 2009. The increases are partly due to upward pressure on prices which stems from the very low inventory. The median is also affected whenever the mix of properties leans more toward higher priced homes. For now we’re seeing primarily a low inventory of entry-level homes, causing legitimate upward pressure on prices. The mid-to-upper end homes are still selling more slowly, so they aren’t affecting the median price as much.

  3. Doc said time travel was possible with the flux capicitor. Well here in Las Vegas and the rest of the country it is like traveling back in time 8 years! Most of the bank owned homes I have showing recently are priced at what they were in 2000! I believe it is just as silly to think we will drop more as it was to think it would keep climbing back in 2005!

  4. The housing market is currently on the phase of turn over as the rates of homes (may it be the upper level houses or lower level) are being lowered. Hoping for self-recovery, we are still uncertain when it’ll happen. Moreover, we will be observing more of the home median prices.

    1. Frankly, it often seems like it is a Seller’s market it in San Diego. Anyone looking to buy a house under $500,000 is competing with multiple offers on just about every property. It does bode well for the future, as a clear floor has been established.

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