REALTORS MUST THINK BIG IN ASSESSING HOUSING MARKET.

Byline: GREGORY J. WILCOX

This housing market is dominated by bigness. Sales add up to big numbers. Prices are big numbers. Together they equal the big contradiction.

It's brought to us every month by the California Association of Realtors, which in its capacity as one of the chief market-watchers brings us its ``Housing Affordability Index,'' a topic addressed a couple of months ago.

The association bills its affordability index as ``the most fundamental measure of housing well-being in the state.''

June's index came out in the middle of last week - it always lags the market by a month - and it showed that only 18 percent of California households could afford a home priced at the median of $469,170.

The reality was not that grim, though.

So here's the contradiction. The same month affordability sank to its lowest level in 15 years, sales were zipping along at an annualized record of 633,670 single-family homes.

The association thinks it knows why and is now talking about tweaking how it calculates affordability so it more accurately reflects market conditions.

One of the index's main components is the percentage of income allocated for housing.

Conventional wisdom says it's 30 percent - and that used to be true.

But it's not any more, said Robert Kleinhenz, the association's deputy chief economist.

``As a practical matter the number or qualifying ratio many lenders use is closer to 40 percent, and in rare cases it could be 50 percent if there were no other household debts,'' he said.

Applying that standard would have raised June's affordability index by 11 percentage points.

That does seem about right, given today's high-priced environment.

And California has always been a high-cost state.

Affordability here has never gotten higher than 50 percent - it peaked at 43 percent in February 1999. In contrast, affordability nationwide has never fallen below 50 percent of households.

Nevertheless, home sales in California this year are still expected to break the record set in 2003.

Several reports last week indicate that the residential real estate wind is now favoring buyers.

It will probably blow gently rather than at gale force, at least for the foreseeable future.

Several factors are in play, and they are weighted on the side of folks looking to buy a home, albeit it probably not their first one.

The number of homes for sale in the San Fernando Valley is now a whopping 86 percent bigger than it was a year ago. It's good - not great - news, though.

The 4,356 active listings being shopped by members of the Southland Regional Association of Realtors is about a 2.5-month supply at the market's current sales pace. Twice as many are needed for a balanced market, or one not biased in favor of sellers or buyers.

Buyers will catch a break, though, simply because there is more stuff to look at.

And look for sales to taper off but still be strong in the Valley while price increases moderate.

``There are two schools of thought here. Is this the beginning of the end and the market is going to go into a tailspin, or is this part of the normal cycle - a bit of a lull - and the market will continue to do what it's been doing?'' mused John Karevoll, an analyst at market tracker DataQuick Information Systems.

Karevoll's numbers have him betting on the latter.

Gregory J. Wilcox, [phone]

greg.wilcox(at)dailynews.com