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Home affordability dips as mortgage rates rise in the fourth quarter

Got $148,000 for a down payment and earn at least $200,000 a year?

Great, you can afford a California home. Well, the median-priced home in the Golden State.

Unfortunately, fewer than one of every five Californians can plunk down the dollars and pocket such a hefty paycheck.

Blame a combo of the highest mortgage rates in a decade – though they have come down in recent weeks – and still-near-record home prices that are starting to creep lower.


The state’s affordability index dipped to 17% during the fourth quarter, compared to 18% in the third quarter – and 25% a year ago, according to the California Association of Realtors.

But if you are looking for a silver lining (and you may need some silver to buy a home), the current affordability rate is better than the record-low 16% in second-quarter 2022. However, the current rate is far from the best-ever 56% in early 2012, when the hard-hit housing market was recovering from the Great Recession and the housing meltdown. 

CAR’s affordability index crunches data from around the state and determines the percentage of households that can afford the median-priced home in the respective county based on income. The affordability index is based on the local home price, a 20% down payment and the percentage of homebuyers who can afford the monthly mortgage payment pluses taxes and insurance. 

So, Contra Costa County and its high-earning residents could have a better affordability index (25%) despite an $840,000 median-home price than middle-class Riverside County (21%), where home prices are significantly less.

How affordability is determined

The affordability rate is based on the number of households that earn the minimum income needed to qualify for a 30-year, fixed-rate mortgage with a 20% down payment and the ability to make the monthly payment, which includes taxes and insurance, for the median-priced home.


Of course, the affordability index is based on the median-priced home, and consumers could look at more affordable homes or condos, or even look at a nearby county.

However, many homebuyers cannot afford a 20% down payment – a chunk of change whether you are buying in the Bay Area or Bakersfield – so a smaller down payment would increase the monthly payment.

The Central Coast, from Santa Barbara to Santa Cruz, was the least affordable region in the state at 11% to 13%. Los Angeles and Orange counties also had an affordability index of 13%, meaning about one of every eight households, during the fourth quarter.

The nine-county Bay Area, where Solano County had the lowest price at $509,000, was in the 16% to 25% range. 

Only one in eight households in Orange County can afford to buy a median-priced home. ADOBE STOCK

The Central Valley – think Bakersfield to Sacramento – and the Far North were the most affordable regions in the state, despite household incomes being much lower. 

Despite the downbeat report, there are a few positive signs for home shoppers – home prices dropped in the fourth quarter compared to a year earlier for the first time since 2011, with the second-largest quarter-to-quarter drop in the past 11 years.

In addition, mortgage rates, almost double from a year ago, are down about a full percentage point compared to a few months ago. And the Federal Reserve could curb interest-rate hikes in the coming months depending on inflation worries.

Fourth-quarter affordability rates for select counties and median price, and the minimum household income needed to buy based on a 20% down payment
CountyQ4 2022Median priceMinimum household income needed
Santa Barbara11%$975,000$248,400
Orange13%$1.13 million$288,400
Los Angeles13%$829,130$211,200
San Diego15%$857,000$218,400
San Francisco20%$1.58 million$401,200
Sacramento 28%$500,000$127,200
Kern 30%$374,900$95,600