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August 17th: CAR (California Association of Realt-whores) announces it’s “new-and-improved” Housing Affordability Index (which they had ceased reporting in December, 2005 after it hit an historic low of 14% statewide).

According to the release (written by our old friend, Leslie Appleton-Young?):

In the more than two decades since the CALIFORNIA ASSOCIATION OF REALTORS® first conceived the HAI, the mortgage finance landscape has changed dramatically. The range of mortgage products available to buyers as well as underwriting criteria has changed.

C.A.R. developed the new index measuring affordability for first-time home buyers to better reflect the realities of today’s real estate market."

So how much has the HAI changed?

The minimum household income first-time buyers needed to purchase a home at $482,000 in California in the second quarter of 2006 was $98,720, based on an adjustable interest rate of 6.48 percent and assuming a 10 percent down payment. First-time buyers typically purchase a home equal to 85 percent of the prevailing median price. The monthly payment including taxes and insurance was $3,290 for the second quarter of 2006.

So, assumptions include:
1. Amortizing ARM rate of 6.48%.
2. 10% downpayment.
3. House price = 85% of median price.
4. A monthly nut (PITI) equal to roughly ~50-60% of the FB’s take-home pay. (They didn’t specifically provide this figure, but just do the math based on the mortgage & income assumptions above.)

Tragically, even after torturing the numbers thusly, CAR was only able to produce an affordability figure of 23%. This is just NOT acceptable! Clearly, they ought to keep on torturing those numbers until they confess 100%!

Your assignment: Play with the HAI assumptions and help LAY juice those numbers up as close to the magic 100% mark as possible. possible new assumptions:
--only stated-income, option-ARM/NAAVLP financing
--calculate PITI using only neg-am “teaser” rates
--assume FBs purchase a home equal to .001% of the median price
--assume 99% down payment (makes loan payments much smaller)
--assume FBs will serially refi before any loan adjusts

Please help LAY --she really needs it!
HARM

#housing