The California housing market is facing a significant challenge as housing affordability hits a 16-year low in the third quarter of 2023. This decline is attributed to soaring interest rates, reaching a two-decade high, and a continuous rise in home prices, according to the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.).
Statistics and Figures:
In Q3 2023, only 15 percent of California households could afford the median-priced home of $843,600, down from 16 percent in the previous quarter and 18 percent a year ago. To afford this home, a minimum annual income of $221,200 was required, with monthly payments of $5,530 on a 30-year fixed-rate mortgage at a 7.14 percent interest rate.
For condos and townhomes with a median price of $650,000, 23 percent of home buyers could afford them. The minimum annual income needed for this purchase was $170,400, resulting in monthly payments of $4,260.
Interest Rates and Impact:
The effective interest rate surpassed 7 percent for the first time in over two decades, standing at 7.14 percent in Q3 2023. This surge in interest rates is a critical factor contributing to the decline in housing affordability.
However, there is optimism that interest rates may decrease if there is a further economic slowdown, which could potentially alleviate pressure on both the supply and demand sides of the housing market, leading to improved affordability in the upcoming quarters.
When examining housing affordability on a regional level:
- 36 counties experienced a decline in affordability compared to the previous quarter, with only 5 counties showing improvement.
- On a year-over-year basis, 6 counties witnessed improved affordability, while 42 counties recorded a decline.
Notable findings from specific counties include:
- Lassen (58 percent) remained the most affordable county in California, requiring a minimum qualifying income of $55,600 to purchase a median-priced home.
- Mono (5 percent), Monterey (9 percent), San Luis Obispo (10 percent), and Santa Barbara (10 percent) were the least affordable counties, each demanding a minimum income of at least $226,800 to buy a median-priced home.
- San Mateo topped the list with the highest minimum qualifying income of $516,000, followed by Santa Clara ($484,800) and Marin ($416,400).
Year-over-Year Affordability Changes:
Notable year-over-year changes include:
- Kings experienced the most significant drop in affordability, falling 13 points from Q3 2022 to Q3 2023.
- Amador registered the second-largest decline, moving eight points below the previous year.
- Kern, Sacramento, and Stanislaus each dropped six points from a year ago.
Despite higher household incomes, elevated home prices, and increased mortgage rates remain primary factors contributing to the challenges in housing affordability across most counties in California.
For a visual representation of the data, refer to the infographic provided by C.A.R.