THE CALIFORNIA ASSOCIATION OF REALTORS RECENTLY RELEASED the third quarter results of the Housing Affordability Index, the most fundamental measure of the health of housing in California, and the results show continuing good news for the prospects of California real estate.

The statewide index rose to 36, meaning roughly 36 percent of households could afford to purchase a median-priced home in California. The median home price for a single-family home in California is presently at $460,940, representing a year-over-year increase of 7.6 percent.

Bay Area home values are quite a bit higher than statewide averages, with a median home value throughout the nine-county region standing at $730,240, mirroring the statewide appreciation of 7.6 percent. Solano County remains the most affordable place in the Bay Area to purchase a home, with a median home value of $328,040, a 14.6-percent increase from a year ago.

Home values are climbing even faster in some neighboring counties: Napa posted a 32.8-percent year-over-year improvement, and Marin came in at 28.9 percent. This information should bode well for Solano County as buyers seek relief from higher prices elsewhere.

Affordability is tied to the health of housing, and when looking at historical trends it is obvious that housing market busts have been tied to record-low affordability numbers.

As the wheels were starting to fall off in the third quarter of 2007, the HAI in California was down to just 11 — meaning roughly 11 percent of families could afford to buy a median-priced home. Does anybody really wonder why the market crashed?

Typically, the index ranges between 30 and 40. The all-time high since CAR started tracking the number was in the first quarter of 2012, just before the housing recovery started, when the HAI stood at 56.

Home values in the state have improved substantially since 2012. Interest rates have continued to stay very low, supporting overall housing affordability.

Piggybacking on last week’s column regarding first-time home buyers, the HAI for first-time buyers indicates that the market remains healthy, at least given the assumptions made by the CAR index. The index assumes a 10-percent down payment and a median price of 85 percent of the median price in California.

The FTB-HAI dropped to 53 statewide in the second quarter results (third quarter results not yet released). The Bay Area did not fare as well, coming in at just 42. Solano County, meanwhile, is still the most affordable, reflected in its index of 72.

Solano County is a fairly diverse county, so keep in mind these are averages for the county. I am frequently asked by buyers in Benicia why the loan limits are so low compared to other surrounding counties. Benicia is a bit of an island, as average values here tend to be much higher than in other cities in the county. Since average home values are sharply higher than other communities like Vallejo or Fairfield, the numbers get a little skewed when thinking about affordability in this community.

Remember, the FTB-HAI measures affordability in terms of monthly payments, not the ability of first-time buyers to save for a down payment. After last week’s column, more than one family contacted me to tell me they would have no issues making a mortgage payment but could not manage to save even the minimum 3.5 percent that FHA allows — much less the 10-percent down payment this index assumes.

Overall, though, the index seems to reflect a housing market that is generally healthy. We must keep a sharp eye on interest rates, as any increase could cause affordability to drop significantly, placing danger signs around this important segment of the economy.

Guy Benjamin (CAL BRE License #01014834, NMLS 887909) writes a weekly column for The Herald, offering general information on real estate matters. As it is impossible to address all possibilities and variations, he will try to answer individual questions by readers who contact him at 707-246-0949 or guyb@fairwaymc.com.height=”150″ />

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