Housing Affordability – Is Now the Time to Buy?

Every quarter, the California Association of Realtors publishes an update to the Housing Affordability Index, a measure of the percentage of households that can afford to purchase a median-priced home in their area. In Ukiah, the homes in the Oak Manor subdivision are usually median-priced homes. The median sales price is currently about $475,000, down a smidge from last year at this time.

In Mendocino County, the index for the first quarter of 2023 shows that 26 percent of households could afford a median-priced house, very similar to last year at this time (2022 Q1 was 24 percent). However, this is up significantly from the quarter before (2022 Q4 was 14 percent).

So, what’s going on? Well, interest rates started to rise in March of last year and that made houses less affordable—but with a little time, the market has been able to adjust. The longer interest rates remain at the new rate, the more the housing prices will tend to reflect that rate.

In inland Mendocino County, more houses have come on the market as the weather warms up (as happens every spring), but we have about 20 percent fewer houses for sale than we did last year at this time. However, the average time it takes to sell a house is similar. Last year at this time it took an average of 91 days, and this year it’s taking about 96 days. Although people would love to sell their house in a week, three months is a reasonable amount of time in a healthy housing market.

Now the question is: Is this a buyers’ market or a sellers’ market? I determine this by noting how many months’ worth of inventory we have. When we have at least a six-month supply (based on how fast houses sold last month), it’s a buyers’ market. If we have fewer than six months’ worth, it’s a sellers’ market.

As of June, we are balanced between a buyers’ and sellers’ market, and although interest rates have been on the rise, we’re not in an unreasonable market. Talk to Realtors who have been at this a while, and they’ll tell you that interest rates between 6 and 8 percent are normal. The ultra-low rates of the last several years were crazy. Frankly, I was at a loss to explain them, except that banks had nowhere else to put their money.

When interest rates rise, the market takes time to respond. An initial shock washes through the real estate market. If housing prices went up by 7 percent, a 7 percent interest rate is not that detrimental. The value of your home is going up by the amount of interest you’re paying each year. You must have the income to cover the payments, of course, but the value of your home will pay for the increase in rate. Inflation is not tax deductible, but the interest on your home loan is.

I am less concerned about the real estate market in terms of the supply and demand for existing homes than I am for our ability to meet the increasing housing demand in the Ukiah Valley, given the building constraints applied by local government and the associated fees and costs.

I find it interesting that Governor Newsom and the state legislature don’t want to be constrained by the California Environmental Quality Act (CEQA), but they keep it in place for the rest of us. For their pet projects like sports stadiums and low-income housing, CEQA can be waived, but not fair market housing.

In fairness, the intent of CEQA is good. I don’t want to see any construction obliterate Ukiah. On the other hand, it shouldn’t be wielded as a weapon to prevent growth but waived when those in power want certain projects to move forward. At this point, CEQA is one of the largest contributors to the housing shortage in California—and that housing shortage continues to reduce housing affordability locally and statewide.

If you have questions about property management or real estate, please contact me at rselzer@selzerrealty.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 45 years.

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