The California housing market appears to be leaning towards a balanced scenario. The surge in sales and the increase in new active listings suggest a market that is responsive to changes in interest rates. While the median home price saw a decline, it is attributed to seasonal factors, and with mortgage rates softening since mid-October, there is an expectation of continued upward momentum in home prices in the early part of 2024.
The median number of days it took to sell a California single-family home in January was 32 days, indicating a relatively brisk pace. The statewide sales-price-to-list-price ratio was 96.5 percent in January 2023, suggesting a market where sellers have some negotiation power.
California Housing Market Trends in 2024
How is the Housing Market Doing Currently?
In February, the California housing market showcased remarkable resilience despite the backdrop of rising mortgage interest rates. According to the latest report from the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.), existing, single-family home sales surged to 290,020, marking a substantial 12.8 percent increase from January's figures.
This surge in sales reflects a robust momentum, echoing sales levels not observed since September 2022. Moreover, the statewide median home price saw a notable uptick, reaching $806,490, up 2.2 percent from the previous month and a significant 9.7 percent increase compared to February 2023.
How Competitive is the California Housing Market?
Despite the recent increase in mortgage rates, the California housing market remains highly competitive. The median home price's continuous climb underscores the market's competitive nature, with prices experiencing year-over-year gains for eight consecutive months. Particularly noteworthy is the resilience observed in the high-end market segment, where homes priced at or above $1 million have sustained better performance compared to more affordable options. This trend has contributed to a strong surge in year-over-year price growth rates.
Are There Enough Homes for Sale to Meet Buyer Demand?
The ongoing improvement in housing supply conditions is a positive indicator for prospective buyers. Active listings surged by more than 10 percent for the second consecutive month, offering a glimmer of hope to buyers who have faced limited options. This increase in supply, coupled with the momentum leading into the spring home buying season, suggests a more favorable landscape for buyers compared to previous years.
What is the Future Market Outlook in California?
Looking ahead, the future of the California housing market presents a mixed picture. While the market has exhibited strong momentum in the first two months of the year, concerns loom over the impact of rising mortgage rates. With rates expected to remain elevated for the foreseeable future, the market could face challenges in sustaining its current pace. However, tight inventory conditions are anticipated to keep the market competitive, providing support for prices.
C.A.R. Senior Vice President and Chief Economist Jordan Levine remains cautiously optimistic, stating that while the recent uptick in interest rates may moderate sales in the coming months, economic slowdowns and anticipated rate adjustments could reinvigorate buyer activity in the second quarter.
Is It a Buyer's or Seller's Housing Market?
Given the current landscape, the California housing market leans towards being a seller's market. The combination of robust demand, limited inventory, and continuous price appreciation indicates favorable conditions for sellers. However, with the anticipated moderation in sales due to rising interest rates, buyers may find opportunities to enter the market, albeit in a competitive environment. As the market evolves, both buyers and sellers should remain vigilant and adaptable to changing conditions.
Regional Trends in California Housing Market
The February 2024 resale housing report from the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) provides further insights into regional trends, shedding light on the performance of various areas across the state.
Sales Performance by Region
On a year-over-year basis, unadjusted raw sales surged across all major regions in February. The Central Coast region led the pack with a substantial 18.7 percent increase in sales compared to the previous year. Additionally, the San Francisco Bay Area (14.9 percent), the Far North (12.5 percent), and Southern California (7.0 percent) also witnessed solid growth in sales. Although the Central Valley experienced a more modest sales gain of 0.8 percent compared to other regions, the overall trend indicates positive momentum across the state.
County-Level Sales Dynamics
Among the 53 counties tracked by C.A.R., twelve recorded a decline in sales from the previous year. Notably, Sutter (-20.5 percent), Butte (-12.0 percent), and San Joaquin (-9.4 percent) were among the counties with the most significant sales declines. Conversely, forty counties saw an increase in sales, with Mono (300.0 percent), Plumas (112.5 percent), and Tuolumne (77.4 percent) leading the way in year-over-year sales growth.
Median Price Trends by Region
Across major regions, all recorded an annual increase in median price compared to the previous year. The San Francisco Bay Area witnessed the most substantial price jump, with a remarkable 22.6 percent increase year-over-year. Following closely, the Central Coast (11.0 percent) and Southern California (10.8 percent) also experienced notable median price increases. Although the Central Valley (6.3 percent) and Far North (2.7 percent) posted more moderate growth rates, the overall trend reflects widespread price appreciation across the state.
County-Level Median Price Dynamics
In terms of median price dynamics at the county level, 47 counties in California recorded a higher median price compared to the previous year. Siskiyou (63.5 percent), Mono (36.8 percent), and Lassen (23.8 percent) saw the most significant increases in median price. Conversely, five counties experienced a decline in median price, with San Mateo (-7.6 percent), Kings (-3.4 percent), and Amador (-1.8 percent) among those with decreases.
These regional insights provide a comprehensive overview of the diverse performance of the California housing market, showcasing varying dynamics across different areas of the state.
Inventory and Listings Dynamics
The California housing market witnessed shifts in inventory and listings dynamics, reflecting evolving conditions for both buyers and sellers.
In February, unsold inventory statewide decreased by 6.3 percent on a month-over-month basis and slightly dipped compared to February 2023, declining by -3.2 percent. The Unsold Inventory Index (UII), a key metric indicating the number of months required to sell the available supply of homes, decreased from 3.2 months in January to 3.0 months in February, compared to 3.1 months in February 2023.
Active listings at the state level experienced a year-over-year increase for the first time in 11 months, marking an encouraging shift in housing supply dynamics. February's surge in active listings was the largest in 12 months, hinting at a positive trajectory as the market gears up for the spring homebuying season. However, the rise in mortgage rates since the beginning of the year may lead potential sellers to reconsider listing their homes for sale, potentially impacting future inventory levels.
County-level data revealed mixed trends, with 16 counties experiencing a decline in active listings compared to the previous year, while 34 counties recorded an increase. Notably, Mono witnessed the largest year-over-year drop at -43.5 percent, while El Dorado saw the most significant increase at 56.6 percent. On a month-to-month basis, 15 counties saw a decrease in active listings, while 36 counties recorded an increase, with Marin experiencing the largest monthly increase at 57.7 percent.
New active listings at the state level saw double-digit increases for the second consecutive month as sellers aimed to capitalize on the spring homebuying season, spurred by a dip in mortgage rates at the beginning of the year. Despite this surge in new housing supply, the overall active listings did not see a significant improvement due to concurrent increases in housing demand.
Market Performance Metrics
The median number of days it took to sell a single-family home in California stood at 22 days in February, compared to 35 days in February 2023. C.A.R.'s statewide sales-price-to-list-price ratio was 100.0 percent in February 2023, slightly declining to 97.7 percent in February 2024. Additionally, the statewide average price per square foot for existing single-family homes increased to $407, up from $369 in February of the previous year.
These metrics underscore the dynamic nature of the California housing market, influenced by factors such as inventory levels, listings dynamics, and market performance indicators. As the market continues to evolve, both buyers and sellers should closely monitor these trends to make informed decisions.
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California Real Estate Market Regional Data
Los Angeles Metro Area
The Los Angeles Metro Area reflects a robust market, with the median sold price of existing single-family homes standing at $790,000 in February 2024. This marks a notable increase from the previous month, showing a 5.3% month-over-month rise and a significant 11.3% increase compared to February 2023. Moreover, sales in this region have also seen a substantial uptick, with a 13.2% month-over-month change and a 6.7% increase year-over-year. Such steady growth underscores the desirability of properties in the Los Angeles Metro Area.
Central Coast
Moving to the Central Coast, we observe a similar trend of positive growth. The median sold price for existing single-family homes stands at $950,000, demonstrating a 2.6% increase from the previous month and an impressive 11.0% rise compared to February 2023. Additionally, sales in this region have surged, with a 15.6% month-over-month increase and a remarkable 18.7% jump year-over-year. This indicates a strong demand for properties along the Central Coast, likely fueled by its scenic beauty and attractive lifestyle.
Central Valley
In the Central Valley, affordability remains a key factor driving the market. With a median sold price of $478,200, this region offers relatively more affordable housing options compared to other parts of California. However, this does not compromise on growth potential, as evidenced by a 4.0% month-over-month increase in prices and an 11.2% rise in sales year-over-year. Investors looking for value-driven opportunities may find the Central Valley an attractive prospect.
Far North
Heading to the Far North, we find a market characterized by moderate growth and stability. The median sold price stands at $379,000, showing a 4.8% increase from the previous month and a 2.7% rise compared to February 2023. While sales have seen a modest 1.4% month-over-month increase, there is a more substantial 12.5% jump year-over-year. This suggests a steady demand for properties in this region, perhaps driven by its natural beauty and lifestyle offerings.
Inland Empire
The Inland Empire continues to be a hotspot for real estate activity, with both prices and sales showing positive momentum. The median sold price stands at $576,500, reflecting a 3.1% month-over-month increase and a 4.8% rise year-over-year. Moreover, sales have surged by 14.8% compared to the previous month and 3.9% year-over-year. This indicates a thriving market in the Inland Empire, likely driven by its affordability compared to coastal regions.
San Francisco Bay Area
The San Francisco Bay Area stands out as a high-demand market with exceptional growth rates. With a median sold price of $1,256,500, this region commands premium prices reflective of its tech-centric economy and desirable lifestyle. February 2024 saw a remarkable 14.2% month-over-month increase in prices and an astonishing 22.6% rise compared to the same period last year. Sales have also skyrocketed, with a 24.8% month-over-month increase and a 14.9% jump year-over-year. Despite its high cost of living, the San Francisco Bay Area remains a prime investment destination for those seeking high returns.
Southern California
Lastly, Southern California demonstrates steady growth and strong demand for real estate. The median sold price stands at $825,000, showing a 5.0% month-over-month increase and a 10.8% rise year-over-year. Sales have also seen a healthy uptick, with a 14.7% month-over-month increase and a 7.0% jump compared to February 2023. This region's appeal lies in its diverse offerings, ranging from bustling urban centers to serene coastal communities.
California Housing Market Forecast 2024
On September 20, 2023, the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) released its highly anticipated “2024 California Housing Market Forecast,” outlining key projections for the state's housing market in the upcoming year.
Positive Rebound in California Housing Market
In 2024, the California housing market is expected to experience a rebound, primarily attributed to a decrease in mortgage rates. The forecast predicts a substantial increase of 22.9 percent in existing, single-family home sales compared to the projected pace of 2023.
Sales and Prices Projection
The forecast estimates a total of 327,100 units in single-family home sales for 2024, showcasing a promising rise from the projected 266,200 units in 2023. Additionally, California's median home price is anticipated to climb by 6.2 percent to $860,300 in 2024.
Market Environment and Factors Influencing the Forecast
Factors like slower economic growth and cooling inflation are anticipated to bring down mortgage interest rates, creating a more favorable market environment to stimulate California home sales in the coming year. A housing shortage and competitive market are expected to continue exerting upward pressure on home prices.
Economic Indicators and Job Growth
The forecast takes into account economic indicators, predicting a modest 0.7 percent increase in the U.S. gross domestic product for 2024. The state's nonfarm job growth rate is estimated to be 0.5 percent. However, the unemployment rate is expected to slightly increase to 5.0 percent in 2024 from the projected 4.6 percent in 2023.
Impact on Mortgage Rates and Housing Supply
With the expected softening of the economy in 2024, the Federal Reserve Bank is predicted to loosen its monetary policy, leading to a downward trend in mortgage rates throughout the year. This could provide buyers with greater financial flexibility, resulting in increased housing demand and further upward pressure on home prices. Despite an expected increase in active listings, housing supply is projected to remain below the norm.
The “2024 California Housing Market Forecast” by C.A.R. paints an optimistic picture of the state's housing market, anticipating a significant rebound in home sales and a notable increase in median home prices. This forecast considers various economic factors and market conditions, providing valuable insights for both buyers and sellers. As the year unfolds, the actual market performance will undoubtedly shed more light on the accuracy of these projections.
How Competitive is the California Housing Market?
According to Zillow, the average home value in California currently stands at $750,709, reflecting a 4.4% increase over the past year. This growth signifies a robust real estate market in the state, providing homeowners with a positive outlook on their property investments. Homes in California are moving swiftly, going pending in approximately 21 days (Data through January 31, 2024).
California Housing Inventory Metrics
Understanding the available inventory is crucial for those navigating the California housing market. As of January 31, 2024, there are 55,924 homes available for sale. This figure provides potential buyers with insights into the overall housing supply, aiding in informed decision-making.
New Listings and Market Dynamics
For those actively monitoring the market, the number of new listings is a key indicator. As of January 31, 2024, there have been 16,522 new listings, showcasing the dynamic nature of California's real estate landscape. This influx of new properties contributes to the variety of options available to potential buyers.
Sale Price Metrics
Examining sale price metrics is essential for both buyers and sellers to gauge market trends. The median sale price in California, as of December 31, 2023, is $693,667. Additionally, the median list price for homes on the market as of January 31, 2024, is $705,666. Understanding the variance between these two figures provides insights into pricing dynamics and potential negotiation points.
Sale-to-List Ratio and Pricing Strategy
The sale-to-list ratio is a crucial metric reflecting the effectiveness of pricing strategies. As of December 31, 2023, the median sale to list ratio in California is 1.000, emphasizing a balanced approach to pricing. This ratio indicates that, on average, homes are selling for their listed price, showcasing a market equilibrium.
Competitive Market Dynamics
Understanding the competitive nature of the market is vital for both buyers and sellers. As of December 31, 2023, 43.8% of sales in California were over the list price, while 42.5% were under the list price. These percentages highlight the competitive dynamics within the market, guiding buyers and sellers in making strategic decisions.
Top Areas in California Poised for Home Price Growth from 2024 to 2025
San Diego, CA
The metropolitan statistical area (msa) of San Diego, CA, is poised for notable home price growth. As of January 31, 2024, the projected growth for the period ending on February 29, 2024, is 0.4%, followed by a more substantial increase of 2% by April 30, 2024. Looking further ahead to January 31, 2025, the anticipated growth surges to 6.2%. These figures indicate a strong upward trajectory, making San Diego an area to watch for potential real estate investments.
Santa Maria, CA
Another region in California with promising home price growth is Santa Maria. The msa of Santa Maria is projected to experience gradual increases, starting with 0.1% by February 29, 2024, followed by 1.1% by April 30, 2024. The growth trajectory continues with an estimated 5.6% by January 31, 2025. This steady progression suggests a positive market sentiment and potential opportunities for both buyers and sellers in Santa Maria.
Bakersfield, CA
Bakersfield emerges as another notable region in California, showcasing consistent growth projections. As of January 31, 2024, the expected growth is 0.3% by February 29, 2024, and a subsequent increase to 1.3% by April 30, 2024. Looking ahead to January 31, 2025, the anticipated growth stands at 5.2%. These figures indicate a positive trend in Bakersfield, making it an area to watch for potential real estate developments.
Merced, CA
The msa of Merced demonstrates a pattern of steady growth in home prices. Starting with 0.4% by February 29, 2024, the growth progresses to 1.4% by April 30, 2024, and 4.8% by January 31, 2025. This upward trajectory suggests a favorable market environment in Merced, providing opportunities for those considering real estate transactions in the region.
Hanford, CA
Lastly, Hanford, CA, is identified as a region with notable potential for home price growth. With a projected growth of 0.4% by February 29, 2024, 1.4% by April 30, 2024, and 4.6% by January 31, 2025, Hanford presents itself as an area where real estate dynamics are on an upward trajectory. Investors and individuals in the housing market may find opportunities for growth and development in this region.
Fresno, CA
Fresno stands out as another area with positive projections. As of January 31, 2024, the expected growth is 0.3% by February 29, 2024, followed by a more substantial increase of 1.4% by April 30, 2024. Looking ahead to January 31, 2025, the anticipated growth remains strong at 4.5%. These figures position Fresno as a region where real estate dynamics are on an upward trajectory, offering potential opportunities for investors and individuals in the housing market.
Riverside, CA
Riverside is another metropolitan statistical area (msa) in California displaying positive growth trends in home prices. As of January 31, 2024, the projected growth is 0.2% by February 29, 2024, and a subsequent increase of 0.6% by April 30, 2024. Looking ahead to January 31, 2025, the anticipated growth stands at 4.2%. These figures suggest a steady and positive market sentiment in Riverside, making it an area of interest for those engaged in real estate transactions.
Modesto, CA
Modesto emerges as another region in California with notable potential for home price growth. As of January 31, 2024, the expected growth is 0.3% by February 29, 2024, and a subsequent increase of 1.3% by April 30, 2024. Looking ahead to January 31, 2025, the anticipated growth stands at 4.1%. These figures indicate a positive trend in Modesto, providing opportunities for those considering real estate transactions in the region.
Visalia, CA
Visalia is identified as a region with steady and positive growth in home prices. As of January 31, 2024, the projected growth is 0.3% by February 29, 2024, and a subsequent increase of 0.9% by April 30, 2024. Looking ahead to January 31, 2025, the anticipated growth stands at 4.1%. These figures position Visalia as an area where real estate dynamics are on an upward trajectory, offering potential opportunities for investors and individuals in the housing market.
Salinas, CA
Salinas concludes our exploration of regions with promising home price growth in California. As of January 31, 2024, the expected growth is 0.1% by February 29, 2024, and a subsequent increase of 1.1% by April 30, 2024. Looking ahead to January 31, 2025, the anticipated growth stands at 4.1%. These figures highlight Salinas as a region with positive market dynamics, providing potential opportunities for investors and individuals navigating the real estate landscape.
El Centro, CA
Our exploration of regions with promising home price growth in California continues with El Centro. As of January 31, 2024, the expected growth is 0.5% by February 29, 2024, followed by a more substantial increase of 1.5% by April 30, 2024. Looking ahead to January 31, 2025, the anticipated growth remains steady at 4.1%. These figures position El Centro as a region where real estate dynamics are on an upward trajectory, offering potential opportunities for investors and individuals in the housing market.
Yuba City, CA
Yuba City is another metropolitan statistical area (msa) in California showing positive growth trends in home prices. As of January 31, 2024, the projected growth is 0.1% by February 29, 2024, and a subsequent increase of 1.1% by April 30, 2024. Looking ahead to January 31, 2025, the anticipated growth stands at 4.1%. These figures suggest a gradual but positive market sentiment in Yuba City, making it an area of interest for those engaged in real estate transactions.
Madera, CA
Madera emerges as another region in California with notable potential for home price growth. As of January 31, 2024, the expected growth is 0.2% by February 29, 2024, and a subsequent increase of 0.8% by April 30, 2024. Looking ahead to January 31, 2025, the anticipated growth stands at 4%. These figures indicate a positive trend in Madera, providing opportunities for those considering real estate transactions in the region.
Stockton, CA
Stockton is identified as a region with steady and positive growth in home prices. As of January 31, 2024, the projected growth is 0.2% by February 29, 2024, and a subsequent increase of 1.3% by April 30, 2024. Looking ahead to January 31, 2025, the anticipated growth stands at 3.8%. These figures position Stockton as an area where real estate dynamics are on an upward trajectory, offering potential opportunities for investors and individuals in the housing market.
Oxnard, CA
Oxnard concludes our exploration of regions with promising home price growth in California. As of January 31, 2024, the expected growth is 0.2% by February 29, 2024, and a subsequent increase of 1.3% by April 30, 2024. Looking ahead to January 31, 2025, the anticipated growth stands at 3.7%. These figures highlight Oxnard as a region with positive market dynamics, providing potential opportunities for investors and individuals navigating the real estate landscape.
Sacramento, CA
Lastly, Sacramento is identified as a region with positive growth trends in home prices. As of January 31, 2024, the projected growth is 0.1% by February 29, 2024, and a subsequent increase of 1.1% by April 30, 2024. Looking ahead to January 31, 2025, the anticipated growth stands at 3.2%. These figures suggest a steady and positive market sentiment in Sacramento, making it an area of interest for those engaged in real estate transactions.
Is It a Good Time to Buy a House in California?
Examining the week's activity ending on March 16, 2024, the following daily average figures were observed:
- Closed Sales: 464 per day
- Pending Sales: 588 per day
- New Listings: 684 per day
Realtors' Insights
- Realtors Anticipating Increase in Sales: 36.8% (+28.4%)
- Realtors Anticipating Increase in Prices: 19.4% (+9.7%)
- Realtors Anticipating Increase in Listings: 44% (+32.5%)
Interpretation and Analysis
The data suggests several key trends:
- There is a healthy volume of closed and pending sales, indicating a dynamic market.
- The number of new listings is relatively high, providing buyers with a diverse selection of properties.
- Realtors' anticipation of increased sales, prices, and listings reflects confidence in the market's growth.
Considering the robust activity in closed and pending sales, coupled with the optimistic outlook from real estate professionals, now could be a favorable time to buy a house in California. With a variety of properties available and expectations for market growth, prospective buyers may find opportunities to secure desirable homes in this market.
Housing Affordability Trends in California – 4th Quarter
The fourth quarter of 2023 witnessed a confluence of factors that have significantly impacted housing affordability. Elevated interest rates and a persistent shortage in home inventory have contributed to a 16-year low in housing affordability, according to the latest report from the California Association of Realtors (C.A.R.).
Current Affordability Landscape
During the fourth quarter of 2023, only 15 percent of California households could afford to purchase the median-priced home, which stood at $833,170. This figure remained unchanged from the previous quarter and marked a decrease from 17 percent in the same quarter of the previous year. These statistics highlight the persistent struggle for Californians aspiring to own a single-family home.
To put this into perspective, a minimum annual income of $222,800 was required to make monthly payments of $5,570. These calculations included principal, interest, and taxes on a 30-year fixed-rate mortgage with an interest rate of 7.39 percent. Notably, this interest rate is the second consecutive quarter where it rose above 7 percent in more than two decades.
Comparative Analysis: Condos/Townhomes vs. Single-Family Homes
While the affordability of single-family homes declined, there was a relatively better scenario for condominiums and townhomes. In the fourth quarter of 2023, 22 percent of homebuyers were able to afford the median-priced condo or townhome, which was pegged at $650,000. To make a monthly payment of $4,350, a minimum annual income of $174,000 was required.
This trend diverges from the broader housing market, where single-family homes face greater affordability challenges. The median price of condos and townhomes held up better than their single-family counterparts, showcasing a nuanced picture of the real estate landscape in California.
Insights from C.A.R.'s Traditional Housing Affordability Index (HAI)
C.A.R.'s HAI provides a comprehensive view of housing well-being for homebuyers in the state. The index, which measures the percentage of households that can afford a median-priced, single-family home, stands at 15 percent for the fourth quarter of 2023. This is a stark contrast to the peak high of 56 percent recorded in the first quarter of 2012, underscoring the long-term challenges in housing affordability.
The minimum annual income of $222,800 required to qualify for the purchase of a $833,170 median-priced home signifies the financial barriers faced by many Californians. The monthly payment, including taxes and insurance, has become a substantial financial commitment for aspiring homeowners.
Market Dynamics: Interest Rates and Economic Trends
Despite a modest decline in interest rates during the latter part of the fourth quarter of 2023, the overall trend remains elevated. Rates dropped by about 100 basis points from the peak in mid-October but have stabilized in recent weeks. This stability, coupled with unexpected economic resilience, has led to speculations that the Federal Reserve might refrain from rate cutting at their upcoming March meeting.
This scenario suggests that elevated interest rates are likely to persist through the first half of the year, putting continuous downward pressure on affordability. The real estate market in California is navigating through a complex interplay of economic factors that impact the ability of households to enter the housing market.
National Perspective: California vs. the Rest of the Nation
When compared with the national average, California's housing affordability paints a challenging picture. While 15 percent of households could afford the median-priced home in the state, more than a third of the nation's households could afford a $391,700 median-priced home, requiring a minimum annual income of $104,800 to make monthly payments of $2,620. This discrepancy underscores the unique challenges faced by Californians in the real estate market.
Regional Disparities: A Closer Look at County-Level Housing Affordability
The housing affordability landscape in California is characterized by significant regional disparities, as evident in the county-level analysis provided in the fourth-quarter 2023 report. Key findings highlight the dynamic nature of affordability, showcasing variations between counties and the impact of changing market conditions.
Quarterly Changes
Comparing the fourth quarter of 2023 with the previous quarter, housing affordability declined in 15 counties, while it remained unchanged in 17. Notably, 19 counties exhibited improvements in affordability, attributed to more modest price declines compared to other regions during the same period. This nuanced interplay between counties underscores the localized nature of the challenges faced by potential homebuyers.
Year-Over-Year Trends
On a year-over-year basis, the report highlights that five counties experienced an improvement in affordability, while 39 counties recorded a decline, and seven remained unchanged. These trends provide insights into the evolving nature of housing affordability, with certain regions facing more acute challenges compared to others.
Most and Least Affordable Counties
At the forefront of affordability, Lassen County maintained its position as the most affordable county in California, boasting an affordability index of 49 percent. Alongside Tehama County (40 percent), these two counties were the only ones with an affordability index of 40 percent or higher in the fourth quarter of 2023. The Far North region of the state dominated the top three, with Shasta County (36 percent) securing the third spot.
Conversely, Mono County (5 percent), Monterey County (8 percent), and San Luis Obispo County (8 percent) emerged as the least affordable counties. These regions required a minimum income of at least $242,800 to purchase a median-priced home. At the top of the list, San Mateo County demanded the highest minimum qualifying income, surpassing $500,000, followed by Santa Clara County and Marin County.
Yearly Affordability Changes
Examining the year-over-year changes, Mariposa County witnessed the most significant decline, dropping nine points from the fourth quarter of 2022 to the same period in 2023. Kings, Stanislaus, and Yuba followed closely, registering a six-point decrease in affordability. Despite higher household income, elevated home prices, and increased mortgage rates, several counties, including San Bernardino, Glenn, Merced, Sacramento, and Lassen, experienced a notable decline in affordability, emphasizing the broader challenges across the state.
As the cost of borrowing remains near all-time highs, and housing affordability faces headwinds, understanding these county-level dynamics becomes crucial for both policymakers and prospective homebuyers seeking to navigate California's diverse real estate landscape.
Challenges Facing the California Housing Market in 2024
Several factors have contributed to the challenges facing the California housing market. Here are some key factors that interact with each other, creating a complex and dynamic housing market in California.
1. High Demand and Limited Supply:
California has a high population density and strong economic growth, leading to a high demand for housing. However, there is a limited supply of available housing, particularly in desirable areas. This imbalance between supply and demand has driven up housing prices, making it difficult for many prospective buyers to afford homes.
2. Affordability Issues:
The high cost of housing in California has made homeownership less attainable for many residents. The median home price in the state is significantly higher than the national average. The combination of high home prices, rising interest rates, and stringent mortgage qualification rules has created affordability challenges for prospective buyers.
3. Strict Zoning and Land Use Regulations:
California has some of the most stringent zoning and land use regulations in the country. These regulations often restrict new construction and development, making it difficult to increase the housing supply to meet demand. This has resulted in a housing shortage and contributed to the rising prices.
4. Lack of Affordable Housing:
California faces a severe shortage of affordable housing, particularly in major cities. The cost of constructing affordable housing and the complex process of obtaining approvals and permits have hindered the development of affordable units. This has exacerbated the affordability crisis and led to a growing population of renters.
5. Economic Factors:
Economic conditions, such as job growth, wages, and interest rates, can significantly impact the housing market. Slowing economic growth or stagnant wages can dampen demand for housing, while rising interest rates can increase borrowing costs and dissuade potential buyers. These factors, in combination with high housing prices, have made it challenging for many Californians to enter the housing market.
6. Impact of Natural Disasters:
California is prone to natural disasters, including wildfires and earthquakes, which can damage or destroy homes and disrupt the housing market. Rebuilding efforts and insurance costs following these events can impact housing availability and affordability in affected areas.
7. Migration Patterns:
Migration patterns also play a role in the housing market. California has experienced both domestic and international migration, leading to increased demand for housing. However, in recent years, there has been a trend of net outmigration, with some residents leaving the state due to affordability concerns, congestion, and other factors. This can impact the supply and demand dynamics of the housing market.
California Rent Prices
According to the latest California rent report for Q3 2023 by Rentometer, the average rent prices for three-bedroom (3-BR) single-family rentals (SFRs) in these five cities: Los Angeles, Sacramento, San Diego, San Francisco, and San Jose. San Diego had the largest year-over-year rent increase of 8%, while San Jose had the smallest increase of 2%.
Rent prices in these five California cities experienced the following year-over-year rent increases in Q3 2023:
- The average San Diego rent price is $4,595 with a year-over-year rent price increase of 8%
- The average San Francisco rent price is $5,431 with a year-over-year rent price increase of 5%
- The average Los Angeles rent price is $5,172 with a year-over-year rent price increase of 5%
- The average Sacramento rent price is $2,550 with a year-over-year rent price increase of 4%
- The average San Jose rent price is $4,061 with a year-over-year rent price increase of 2%
City/State | Q3 2022 Average Rent |
Q3 2023 Average Rent |
YoY % Change |
San Diego, CA | $4,262 | $4,595 | 8% |
San Francisco, CA | $5,166 | $5,431 | 5% |
Los Angeles, CA | $4,949 | $5,172 | 5% |
Sacramento, CA | $2,457 | $2,550 | 4% |
San Jose, CA | $3,981 | $4,061 | 2% |
Sources:
- https://www.car.org/
- https://www.car.org/aboutus/mediacenter/newsreleases
- https://www.car.org/marketdata/data/countysalesactivity
- https://www.car.org/marketdata/marketforecast
- https://www.car.org/marketdata/marketminute
- https://www.car.org/marketdata/interactive/housingmarketoverview
- https://www.zillow.com/ca/home-values
- https://www.rentometer.com/california-home-rents