Two recent reports suggest that housing affordability is declining nationally and is close to setting new records in California where one out of nine Americans live.

According to the National Association of Realtors, general housing affordability conditions remained favorable but declined in the second quarter, largely as the result of higher home prices.

Mortgage interest rates dropped during the same period, which should have increased affordability, but not enough, particularly in many 'hot' markets. Concurrently, jobs improved and wages increased.

The national unemployment rate was 5.2 percent, not seasonally adjusted, down from 5.8 percent in June 2004. Wages increased half a percent, putting $53 million more in wage-earners' pockets.

These were not enough to offset the largest increase in home prices nationally since November 1980. The price of an existing home in June was $219,000, up 14.7 percent from June 2004 when the median price was $191,000.

Not surprisingly NAR's composite Housing Affordability Index was down 12.4 percentage points to 120.8 during the second quarter, from 133.2 in the first quarter, and was 11.5 points below the second quarter of last year when it stood at 132.3.

However, the index showed a median-income family had 120.8 percent of the income needed to purchase a median-priced existing home, which was $208,500 in the second quarter (and over $10,000 higher in June.) The typical family, earning $56,917, could afford a home costing $251,900 in the second quarter.

(The index measures affordability factors for all homebuyers making a 20 percent downpayment, with an index of 100 defined as the point where a median-income family has the exact amount of income needed to purchase a median-priced existing home.)

David Lereah, NAR's chief economist, said the median home price in the second quarter was 13.6 percent higher than a year earlier. "The strong rate of home price appreciation caused some erosion in affordability conditions, yet it hasn't dampened the market because the second quarter was a record for existing-home sales," he said. "Since mortgage interest rates are still so low, housing affordability conditions remain historically favorable -- there's still headroom in this market."

However, affordability for first-time homebuyers declined significantly in the second quarter, falling to an index 70.1 from a reading of 76.8 in the first quarter; it was 7.0 points below the second quarter 2004.

The association's First-Time Homebuyer Affordability Index shows a typical first-time buyer household, aged 25 to 44, with an income of $32,433, had 70.1 percent of the income needed to purchase a typical starter home in the second quarter with a 10 percent downpayment. The median starter home price was $177,200, during the second quarter; the typical first-time buyer could afford a home costing $124,200.

According to NAR, first-time homebuyers, and presumably many median homebuyers are moving the market by putting down approximately three percent. Four out of 10 homebuyers purchase with no money down.