Affordability of Homes in California: Only 16% of Buyers Can Meet Housing Prices

According to recent data from the California Association of Realtors, home affordability in California has reached a 16-year low. Only around 16% (less than 1 in 5) of homebuyers can afford a median-priced, single-family home in the state. In comparison, 36% of homebuyers in the U.S. can afford a median-priced home. This decline in affordability is attributed to high interest rates and elevated home prices resulting from low inventory.

The report highlights that a minimum income of $208,000 is required to qualify for purchasing a home with an estimated statewide median price of $830,620. This would entail a monthly payment of $5,200, including taxes and insurance, assuming a 20% down payment and an interest rate of 6.6%. However, in San Mateo and Santa Clara counties, homebuyers face even higher minimum qualifying incomes. In San Mateo, the highest minimum qualifying income in the state, a buyer would need $504,400 to purchase a median-priced home at $2.01 million. For Santa Clara, the second least-affordable county, a minimum income of $451,200 is required to buy a median-priced home at $1.8 million.

Notably, even condos and townhomes are becoming increasingly unaffordable for homebuyers. Only 25% of California households can afford a typical condo or townhome, with an annual income of $160,400 needed to make the monthly payment of $4,010 on a median-priced condo or townhome priced at $640,000.

It’s essential to consider these challenges faced by homebuyers in California, as housing affordability continues to decline in the state.

“Despite expectations of moderate inflation in July reducing the likelihood of another Fed rate hike and lowering interest rates, the rates have continued to rise in recent weeks,” stated Hamilton, shedding light on the current situation. “It is anticipated that rates will remain elevated throughout the remainder of the third quarter until the Fed makes its decision regarding the next rate adjustment.”

Furthermore, Hamilton emphasized the ongoing efforts by Realtors to urge state and local officials to explore solutions for increasing housing supply. “By alleviating the pressure on home prices and preventing further escalation, increasing housing supply will play a crucial role,” commented Hamilton. “Should housing affordability continue to decline, California will undergo a significant shift towards a renter state, leading to the potential loss of essential service workers, such as teachers, who are unable to afford a home at the median price within close proximity to their place of work.”