I've been regulalrly interviewed about the foreclosure crisis since starting our California Foreclosure Report in March of last year. As the numbers continue to increase each month, I often get asked "Is there any good news?" I've had the same answer all along, and a report today from Wells Fargo and the National Association of Homebuilders confirms it - foreclosures are bringing affordability back to California.
If you look at the NAHB press release or the headlines today on this story you'll miss my point. They make it qute clear that California dominates the list of LEAST affordable homes in the nation. What the press release and the headlines miss is how much California has improved!!!
Let's start with improvements in affordability since Q4 2005, one of the lowest points in affordability for California. Nationally affordability has impoved 24% since that time. Now check out the 15 most improved areas in the nation according to data I pulled from the Wells/NAHB report:
| Rank | Location | Q4 2005 | Q1 2008 | Increase |
| 1 | Modesto, CA | 3 | 36.2 | 92% |
| 2 | Merced, CA | 2.6 | 28.3 | 91% |
| 3 | Stockton, CA | 4.6 | 35.5 | 87% |
| 4 | San Diego-Carlsbad-San Marcos, CA | 3.6 | 25.2 | 86% |
| 5 | Sacramento--Arden-Arcade--Roseville, CA | 7.3 | 49.7 | 85% |
| 6 | Santa Barbara-Santa Maria-Goleta, CA | 3.2 | 19.6 | 84% |
| 7 | Santa Ana-Anaheim-Irvine, CA ^^^ | 2.9 | 17.4 | 83% |
| 8 | Los Angeles-Long Beach-Glendale, CA ^^^ | 2.3 | 10.5 | 78% |
| 9 | Santa Cruz-Watsonville, CA | 5 | 22.2 | 77% |
| 10 | Yuba City, CA | 8.2 | 35 | 77% |
| 11 | Salinas, CA | 3.2 | 13.1 | 76% |
| 12 | Riverside-San Bernardino-Ontario, CA | 7.8 | 26.9 | 71% |
| 13 | Oakland-Fremont-Hayward, CA ^^^ | 9.7 | 32.4 | 70% |
| 14 | Fresno, CA | 8.7 | 28.1 | 69% |
| 15 | Vallejo-Fairfield, CA | 13 | 35.1 | 63% |
WOW!!! All 15 of the MOST IMPROVED MARKETS since Q4 2005 are in California!
And take a look at the signficant improvements that we have seen in just the last quarter:
| Rank | Location | Q4 2007 | Q1 2008 | Increase |
| 1 | Napa, CA | 4.9 | 15.8 | 69% |
| 2 | Merced, CA | 9.7 | 28.3 | 66% |
| 3 | Modesto, CA | 15.3 | 36.2 | 58% |
| 4 | Salinas, CA | 5.6 | 13.1 | 57% |
| 5 | Stockton, CA | 16.9 | 35.5 | 52% |
| 6 | Santa Ana-Anaheim-Irvine, CA ^^^ | 8.4 | 17.4 | 52% |
| 7 | Yuba City, CA | 17.5 | 35 | 50% |
| 8 | Riverside-San Bernardino-Ontario, CA | 13.5 | 26.9 | 50% |
| 9 | Reno-Sparks, NV | 24.4 | 47.6 | 49% |
| 10 | Visalia-Porterville, CA | 17.6 | 34.2 | 49% |
| 11 | Honolulu, HI | 16.8 | 32.1 | 48% |
| 12 | Oakland-Fremont-Hayward, CA ^^^ | 17.4 | 32.4 | 46% |
| 13 | Oxnard-Thousand Oaks-Ventura, CA | 12.4 | 22.9 | 46% |
| 14 | Sacramento--Arden-Arcade--Roseville, CA | 27.2 | 49.7 | 45% |
| 15 | Fresno, CA | 15.4 | 28.1 | 45% |
While the price adjustments that have enabled this will be painful for banks, builders, those who bought recently, and those who used their home as an ATM, these increases in affordability are exactly what we need to get back to a healthy real estate market. If lenders had simply paid attenion to what borrowers can actually afford perhaps we never would have had this mess. Hopefully it's a lesson they learn well.
Comments:
Looks like CAR also caught that affordability is improving in California: http://www.car.org/index.php?id=Mzg0ODk=
And with affordability driven by foreclosures comes more sales! Sales are increasing in California, driven significantly be sales of REO property according to reports today from DataQuick:
NorCal
http://www.dqnews.com/News/California/Bay-Area/RRBay080520.asp
SoCal
http://www.dqnews.com/News/California/Southern-CA/RRSCA080519.aspx
Sean, nice to see someone else talking about affordability issues. I run a market analysis and research company for investors and we think that affordability is one of the prime determinants of a market's health in the single family arena. We agree with Cyrus Moulle-Berteaux (Traxis Partners, recent WSJ op-ed) that as affordability improves, inventory will of course fall, and will probably continue to fall in most markets until there are 5 to 6 months of inventory left. Of course there's great variability market to market, but our research suggests that CMB's rule of thumb noted above is not that far off.....
Sean, I just discovered your blog and site today and must say that I really appreciate how insightful and factual it is. A great resource for tracking the CA foreclosure trend. I've added the site to my RSS feeds and will be checking in regularly. Here's to an improved market, thanks to foreclosures, which I love! Greg
Definitely a reflection of the economy as a whole. Not only housing prices drop but the collapse of the credit markets. Eventually we will ride out this problem, but if you have cash now there are some bargains to be had.
http://gewdir.com the bad credit loans blog
Post new comment