The national Housing Affordability Index shows 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. The typical family, earning $56,917, could afford a home costing $251,900 in the second quarter.

This index measures affordability factors for all homebuyers making a 20 percent down payment, 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.

"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," said David Lereah, National Association of Realtors chief economist. "Since mortgage interest rates are still so low, housing affordability conditions remain historically favorable--there's still headroom in this market."

The outlook in California is quite different from the national trend. California households, with a median household income of $53,840, are $70,480 short of the $124,320 qualifying income needed to purchase a median-priced home at $530,430 in California, according to the California Association of Realtors Homebuyer Income Gap Index for the second quarter of 2005.

The association's index analyzes the difference between the median household income and the qualifying income needed to purchase a median-priced, single-family home for the state and for select regions within the state. It is calculated with the same assumptions used to generate the association's monthly Housing Affordability Index: a 20 percent down payment and a monthly payment for principal, interest, taxes and insurance that is no more than 30 percent of a household's income.

The Homebuyer Income Gap Index for California increased 28.3 percent during the second quarter of 2005 compared to the second quarter of 2004, when the gap stood at $54,920, the median household income was $52,630, and qualifying income needed to purchase a median-priced home at $461,280 was $107,550.

The San Francisco Bay Area had the highest gap in the state at $102,230, where potential homebuyers had a median household income of $68,140 but needed a qualifying income of $170,370 to purchase a median-priced home at $726,920.

National Association of Realtors President Al Mansell, of Salt Lake City, said the national index masks widely varying conditions around the country. "We find excellent housing affordability conditions in most of the Midwest and South, but there are challenges in high-cost areas--concentrated in parts of the Northeast and West," he said. "Even so, the fact that we continue to set sales records demonstrates the strength of homeownership as a priority and as an investment."

According to the Federal Housing Finance Board, the average effective mortgage interest rate for existing homes was 5.83 percent during the second quarter, up from 5.77 percent in the first quarter; the rate was 5.73 percent in the second quarter of 2004. This is a weighted average interest rate between fixed and adjustable loans, including the cost of points, and represents a true bottom-line mortgage cost.

Affordability for first-time homebuyers also declined nationally in the second quarter. The 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 down payment. The median starter home price was $177,200, during the second quarter; the typical first-time buyer could afford a home costing $124,200.