The affordability of housing impacts a region’s economy and quality of life. A lack of affordable housing results in longer commutes, diminished productivity, curtailment of family time and increased traffic congestion. It also restricts the ability of crucial service providers—such as teachers, registered nurses and police officers—to live in the communities in which they work. As a region’s attractiveness to new residents increases, home sales, average home prices and rental prices tend to increase. If not matched with new construction, higher housing prices will decrease the affordability of the area. The most recent recession severely disrupted the residential housing market, and foreclosures and underwater mortgages shed light on the status of the recovery to date.

Although the financial pinch for current homeowners lessened in 2012, there is more comparative demand for rental housing than homeownership in Silicon Valley, which has decreased affordability for renters. In 2012, Silicon Valley average rents reached a decade high of $1,966, a ten percent increase over the prior year. Conversely, median household income continues to decline for the third consistent year, falling 3.8 percent in 2011 to a decade low. In 2011, the proportion of renters with housing costs greater than 35 percent of their income reached a peak of 39 percent in Silicon Valley, a trend mirrored in California by an increase of 46 percent.

Approvals for construction of new affordable housing in 2012 dropped to the lowest levels of the 15-year reporting period, compounding housing affordability challenges for Silicon Valley’s middle and lower income residents. The 83 approved new affordable housing units represented only two percent of total new residential units in 2012, a 68 percent drop from 2011.

The economic situation for current homeowners is improving, though demand from potential homeowners to purchase homes remains flat. In 2011, the percent of Silicon Valley (36%) and California (38%) homeowners burdened by housing costs dropped three and two percent respectively. Over the last decade, mortgage payments have represented a growing percentage of household incomes both in the region and the state; however this rate has been declining since 2008. The percentage of first-time homebuyers that can afford to purchase a median-priced home in Silicon Valley fell slightly in 2012. Los Angeles Area and the state followed a similar declining trend, while other California regions reported increased affordability. Of other California regions, Silicon Valley continues to be the least affordable with only 58 percent of potential first-time homebuyers able to afford a median-priced home.

Since hitting a low point in 2008, home sales have leveled off, reaching roughly 29,000 in 2011. In the first half of 2012, home sales in the region reached 16,000, suggesting an overall increase in the annual number. Average sale prices have held steady over the past four years, rising two percent over last year to $671,926. While single family housing starts inched up in 2011, a significant drop in multi-family housing construction led to an overall 42 percent fall over the previous year. Through November 2011, 2,653 new housing starts were constructed compared to over 6,200 in 2006.

Annual Silicon Valley foreclosures have consistently dropped since a high of 8,831 in 2008. This year continues the trend, with significantly fewer (-41%) foreclosures reported in the first half of 2012 as compared with the first half of 2011. As of June 2012, 1,841 homes have been foreclosed upon, half the rate of foreclosures from January to June 2008, during the peak of the housing crisis. California foreclosures have also subsided, with 51,424 in the first part of 2012, a 54 percent drop from the level of foreclosures in the first half 2008.

Silicon Valley's rate of underwater mortgages varies widely within the region, and has fluctuated over time. After a year of increasing rates, Silicon Valley underwater mortgages dropped to 19 percent in the second quarter of 2012. This rate compares to 37 percent in California and 31 percent in the U.S. In Newark, Union City, and Gilroy, the three cities with the highest percentage of underwater mortgages in the region, this rate was 25 percent and above. Los Altos, Saratoga, and Cupertino, the three cities faring the best, had rates of less than five percent.

• Building Affordable Housing
• Rental Affordability
• Home Affordability
• Percent of Households with Housing Costs Greater than 35% of Income
• Trends in Home Sales
• Residential Foreclosure Activity
• Underwater Mortgages