Affordability tumbles to a 15-year low and the majority of homes for sale are ‘stale’

Bay Area counties are more affordable than the statewide average in the second quarter

Almost $200,000 annual income needed to qualify for a home

Higher mortgage rates coupled with near-record-high home prices have slammed the door on homeownership for many wanna-be buyers – and home sellers.

Only 16% of households – fewer than one of every seven – could afford to buy the median-priced home in California during the second quarter, compared to 24% in the first quarter and 23% a year ago, according to the California Association of Realtors. Housing affordability has dropped to the lowest level in almost 15 years, considered the peak of the market before the Great Recession and the housing meltdown.

The Federal Reserve’s two interest rate hikes – for a combined 1 percentage point – during the second quarter could have a chilling effect on the housing market, experts warn. The Fed also increased interest rates by 0.75% in July, and another hike is possible though not certain in September.

The higher rates have greatly boosted the cost of homeownership – and mortgage rates. The average mortgage payment has increased at least 40% during the past quarter, according to Redfin.

BIGGER PAYMENTS, HIGHER PRICES THAN A YEAR AGO

Of course, California’s booming home prices – $883,000 in the second quarter – also complicate the equation. But home prices have ticked lower in recent weeks as more consumers, especially first-time buyers, are priced out of the market.

The average buyer needs to earn at least $199,000 to qualify for a 30-year mortgage with a 20% down payment. And the monthly mortgage, including property taxes, would still be about $4,980. A year ago, the mortgage would have been less than $3,000 per month.

Central Coast communities – from Santa Barbara to Santa Cruz – were the least affordable, with Santa Barbara at the top (or bottom) of the list at 10%. 

The Bay Area, always a challenging market for home shoppers, now looks more reasonable. And here is a big-time head-scratcher: The Bay Area’s affordability index is higher than the statewide average, thanks to higher household incomes than the rest of the state.

The Central Valley, from Bakersfield to Sacramento, and the Far North have also become less affordable for residents, falling below 40% – and even 27% in Sacramento and Placer counties, once considered a low-priced option for those leaving the Bay Area.

Percentage of households able to buy a home and the income needed to qualify for a mortgage
RegionQ2 2022Q2 2021Minimum income needed
Fresno31%43%$95,600
Sacramento27%34%$128,400
Inland Empire21%33%$144,400
San Francisco17%19%$450,800
Sonoma17%23%$195,200
Los Angeles16%22%$186,000
Ventura15%23%$211,600
San Diego14%19%$218,000
Orange12%17%$293,200
Santa Barbara10%13%$262,000

Majority of homes for sale are still available after a month

Bidding wars and the out-of-control competition for homes just a few months ago have been replaced by the sound of crickets during the past several weeks.

Like a bag of chips or a box of crackers open on the counter, many homes are becoming “stale,” often taking more than a month to enter escrow, according to Redfin

Four of the 10 “stalest” housing markets are in California, including first-place Oakland, where 50% of homes listed remain available after a month – a 61% increase compared to a year ago.

More than 60% of the homes for sale in Riverside-San Bernardino, Los Angeles, Anaheim and San Francisco remain on the market after a month. 

A BUYER’S MARKET? MAYBE

Affordability, thanks to higher mortgage rates and still-high home prices, is likely to blame.

Or maybe wanna-be buyers are taking a wait-and-see approach, hoping that home prices – down 4% in June compared to May – will continue to dip.

“People want to know whether we’ve officially shifted from a seller’s market to a buyer’s market,” says Taylor Marr, deputy chief economist for Redfin. “While there’s not a clear line separating those two ideas, homes sitting on the market longer is a point in buyers’ favor. Buyers can take their time making careful decisions about homes without worrying so much about bidding wars, offering over the asking price and waiving contingencies.” 

Despite the most recent price drop, the state’s median home price should increase almost 10% this year compared to 2021, says Jordan Levine, CAR senior vice president and chief economist for the California Association of Realtors. 

But the question is has all of the appreciation already happened and prices will just bounce around in a narrow range for the next several months?

Percentage of homes listed still available after 30 days
  1. Riverside-San Bernardino: 67%
  2. Los Angeles: 66%
  3. Anaheim: 63%
  4. San Francisco: 62%
  5. Sacramento: 56%
  6. San Diego: 55%
  7. San Jose: 51%
  8. Oakland: 50%