The Valley hit a record low for its affordability of housing last year, according to figures released Friday by the Arizona Real Estate Center at Arizona State University Polytechnic.
The Valley’s affordability index dropped to 84 in 2005, the lowest resale home index since 1990 when it was 106, center figures show.
A value of 100 means that a typical home buyer would be able to afford a median-priced home at the existing interest rate. Numbers below 100 mean housing is less affordable, figures above suggest housing is more affordable.
“You are really looking at a relative measure of the home price, income and the financing package. Why is it dropping? You’ve got higher home prices,” said Jay Butler, an ASU professor and the center’s director.
A typical monthly mortgage payment hit $1,310 in December, up from $925 in January 2005. The figures are based on an 85 percent loan-to-value with median home prices of $260,000 and $194,000, respectively, and respective interest rates of 5.9 and 5.4 percent.
Such rising home prices and the resulting uptick in mortgage payments is making people make tougher choices, Butler said.
“Home buying is — except for the very wealthy — a set of tradeoffs and affordability affects the nature of those trade-offs,” Butler said. “Much like if the price of beef goes up, you buy chicken. So instead of buying a home, you might buy a condo or move to a different location.”
The difference in affordability is being seen with firsttime home buyers, said Scott Sepulveda, a Realtor with Century 21 Metro Alliance in Chandler.
Three years ago, a young couple could have afforded a three-bedroom, two-bathroom house that would typically sell for $160,000.
“Now, that’s up to $260,000. So forget about the house. It’s going to be a condo or a townhouse,” Sepulveda said.
But the market seems to be turning toward buyers, Sepulveda said.
“The number of days on the market is growing. Sellers are offering closing cost help, flooring and carpeting allowances,” Sepulveda said. “Homes are selling at about 95 percent sales-to-list price ratio. A year ago, it was full price or more or forget it.”