I was at a seminar recently and the speaker, a respected economist, made me feel way better about the economy. Traditionally in America, we’ve faced an economic recession about every seven years, so by that measure, we’re overdue for a downturn. However, if you look at economic indicators, this speaker made a solid argument for continued growth and prosperity. Unemployment is low. Inflation is low. Interest rates are steady. Consumers are spending. Overall, these trends should give us all plenty of confidence. In Europe and other developed nations, they sometimes go decades without a recession. (For those of you who are superstitious, this would be a good time to knock on wood.)
In the housing market, one of the best indicators to predict home prices is the Housing Affordability Index, and like other economic indicators, the index is steady and is in line with historical trends. The index is a measure of what percentage of households could afford a median-priced, existing single-family home.
According to the California Association of Realtors, 32 percent of California households could afford to purchase the $545,820 median-priced home in the first quarter of 2019, up from 28 percent in fourth quarter 2018 and up from 31 percent a year ago. In Mendocino County, 28 percent of households could afford to purchase the $385,500 median-priced home in the first quarter of 2019, up from 23 percent in fourth quarter 2018 and up from 25 percent a year ago. In Ukiah, the median price is about $375,000 and it requires an income of about $80,000 to afford a house at this price point.
Unfortunately, in Ukiah (and in Mendocino County as a whole), a lower percentage of households can afford to buy a home as compared to the state affordability index. As a rural, sparsely populated county with an agricultural economy, our average reported incomes fall below state averages and significantly below average incomes in places like the San Francisco Bay Area. To make matters worse, strict construction regulations apply statewide, increasing the cost of housing equally in Ukiah where we can ill afford it, and in Marin where incomes are far higher.
As everyone knows, housing in California is more expensive than in much of the rest of the country. The national Affordable Housing Index for the first quarter of 2019 was 57 percent, with a median-priced home costing $254,800, which required a minimum annual income of $53,620. Not only are houses less expensive in other parts of the country, on average, they’re larger, too. Of course, there are downsides to buying these larger, less expensive homes. Chief among them: you have to live somewhere other than California.
Of course, I would like it if our housing index were higher. After all, I sell houses for a living. But realistically, I am content with the current index. It’s sustainable as a result of a small increase in real wages, a slight decrease in housing prices and a slight decrease in interest rates. The housing market is responding as it should, which bodes well for the economy overall.
If you have questions about getting into real estate, please contact me at email@example.com or call (707) 462-4000. If you have an idea for a future column, share it with me and if I use it, I’ll send you a $25 gift certificate to Schat’s Bakery. Dick Selzer is a real estate broker who has been in the business for more than 40 years.