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Falling home prices and lower mortgage rates are allowing more Californians to qualify for a home. The bigger challenge could be finding one for sale.
The state’s affordability rate increased to 20% in the first quarter, compared to 17% during the fourth quarter – and 24% a year ago, according to the California Association of Realtors.
The better-than-exected affordability index comes as home prices inch lower and mortgage rates slide as a sluggish economy continues to sputter.
HOUSEHOLD INCOME OF AT LEAST $188,000 TO QUALIFY FOR THE MEDIAN-PRICED HOME
More affordable but certainly not cheap.
The state’s median-home price – meaning half the homes sold for more, the other half for less – was $760,260 during the first three months of the year. So, the average homebuyer would need to earn at least $188,400 to qualify for a mortgage with a 20% down payment for such a home.
For many first-time buyers, regardless of where they live, that large of a down payment is a hard mission (see table for affordability by metro region, including the estimated monthly payment).
But for move-up buyers – a majority of whom are considered equity rich, owing less than 50% of the current market value of their home – the most significant challenge has been to find a home.
MANY HOMEOWNERS WANT TO HOLD ON TO THOSE LOW MORTGAGE RATES
Many homeowners are reluctant to sell their homes since they have a low-interest mortgage rate – and pint-sized payments. Who wants to give up a 3.5% mortgage rate for a 6.5% rate for what will likely be a pricier home and a larger monthly payment?
Nationwide, new home listings declined 19% in April compared to a year ago, and sales were off 16%, according to Redfin. Four of the five metros with the largest decline in new listings were in California, with Riverside and Anaheim down almost 49%, and Los Angeles off 40% and San Diego tumbling 39%.
California also had two cities – Oakland and Sacramento – among the metros with the largest drop in sales compared to a year ago. Oakland plummeted 34%, followed by Sacramento at 33%.
A boost in affordability is great for homebuyers, but with few homes on the market, the competition for the properties is tough, according to multiple reports.
Affordability defined
The California Association of Realtors bases affordability on the percentage of households that could qualify for a mortgage based on a 20% down payment.
Percentage of households in California able to buy the
median-priced home during first-quarter 2023
| Metro | % able to buy a home in Q1 ’23 | Median home price | Monthly payment | Down payment needed to qualify |
|---|---|---|---|---|
| California | 20% | $760,260 | $4,710 | $188,400 |
| Bakersfield | 33% | $365,000 | $2,260 | $90,400 |
| Fresno | 32% | $390,000 | $2,420 | $96,800 |
| Los Angeles | 17% | $746,750 | $4,630 | $185,200 |
| Orange | 12% | $1.2 million | $7,410 | $296,400 |
| Redding | 39% | $365,000 | $2,260 | $90,400 |
| Riverside | 22% | $597,000 | $3,700 | $148,000 |
| Sacramento | 29% | $500,000 | $3,100 | $124,000 |
| San Diego | 15% | $880,000 | $5,450 | $218,000 |
| San Francisco | 21% | $1.55 million | $9,600 | $384,000 |
| San Jose | 21% | $1.61 million | $10,030 | $401,200 |
| Santa Barbara | 15% | $860,000 | $5,330 | $213,200 |
Source: California Association of Realtors
Many families pay more than 30% of their income on rent in California
Buying a house is an almost hard-to-imagine dream for many Californians, with a majority already struggling with paying the rent.
More than half (53%) of renters spend at least 30% of their household income on rent, according to a new report from the California Housing Partnership. Those renters are considered cost-burdened, and making the rent leaves little – if any – money to save for a down payment.
Almost three of every 10 renters are considered severely cost-burdened, spending at least 50% of their household income on rent (see table for affordable housing needed and cost-burdened data by region).
A MILLION MORE AFFORDABLE APARTMENTS NEEDED
Addressing the cost burden is a complex issue, especially since the state needs at least 1.32 million more affordable apartments for low-income residents.
Southern California has a critical shortage of affordable apartments, with 788,000 more units needed, according to the closely watched report. The Bay Area needs about 290,000 more affordable apartments, the second-highest figure in the state.
California has enjoyed a mini-boom of construction – including more affordable apartment communities – thanks to more federal and state funding for housing. While the state has more than tripled production of new affordable homes, that is still 20% short of what is needed, according to the California Housing Partnership.
HIGHER CONSTRUCTION COSTS = FEWER HOMES
Plus, the dollars aren’t going as far for homebuilders – or renters.
With a critical global supply-chain shortage of some materials and the highest rate of inflation in 40 years, the boost in funding is missing the mark.
And renters, especially lower-income households, are paying more for housing while their paychecks have barely budged since 2000. The state’s median rent – meaning half the apartments rent for more, the other half for less – has increased 38% during the past two decades, while renters’ paychecks are only 7% higher when adjusted for inflation over the same period.
RENT INCREASES ARE EASILY OUTPACING WAGE GAINS
California renters are falling farther behind with the fast-rising rents and the smaller-than-inflation pay raises.
The state’s minimum wage would need to increase three times to make housing affordable for lower-income workers.
California has been attempting to address escalating housing costs in recent years, from making building accessory dwelling units easier for homeowners and taking on cities such as Elk Grove and Huntington Beach to comply with housing requirements.
“Our state is in a housing crisis and local governments must do their part to allow for affordable housing options for all members of our communities, regardless of their income level,” says California Attorney General Rob Bonta. “Everyone deserves to have a place to call home.”
Half of renters spend 30%-plus of income on housing in California
| Region | Affordable housing shortage | Cost burdened (30% of income for housing) | Severely cost- burdened (50% of income for housing) |
|---|---|---|---|
| California | 1.32 million | 53% | 29% |
| Bay Area | 226,000 | 47% | 24% |
| Central Coast | 49,000 | 52% | 25% |
| Greater Sacramento | 80,300 | 53% | 28% |
| North State | 32,600 | 52% | 28% |
| San Joaquin Valley | 131,000 | 51% | 27% |
| Sierras | 1,800 | 48% | 19% |
| Southern California | 788,000 | 55% | 31% |
Source: California Housing Partnership
Bay Area beats other California cities on Best Places to Live list
Two cities in California cracked the top 50 Best Places to Live, and three landed among the top 100, as high housing costs and quality of life issues pose major hurdles for residents.
San Jose finished at No. 14, thanks largely to great job growth and impressive salaries, though the region has been dealing with massive layoffs in the tech sector during the past several months.
Alphabet (better known as Google) and Facebook parent Meta Platforms are among the dozens of tech companies that have eliminated tens of thousands of jobs since third-quarter 2023 in Silicon Valley.
But diverse neighborhoods and hefty paychecks for many of those working help San Jose on the closely watched list by U.S. News and World Report. However, the city was down from the No. 5 spot in 2022.
San Francisco – often in the news for crime and the number of residents experiencing homelessness – finished at No. 45, freefalling from 10th place in 2022.
Despite the dramatic drop, San Francisco was the second-highest-ranked city in California on the list.
San Diego finished at No. 93, and rounds out the three cities in California in the top 100 on the U.S. News and World Report list.
Green Bay, Wis., best-known for its Packers, earned first place on the annual list, followed by Huntsville, Ala. San Juan, Puerto Rico, finished in last place at No. 150, one spot ahead of Bakersfield.
Where other cities landed on U.S. News & World Report’s Best Places to Live list
- 124: Santa Barbara
- 125 Santa Rosa
- 127: Sacramento
- 139: Los Angeles
- 142: Vallejo-Fairfield
- 143. Salinas
- 145. Modesto
- 146. Fresno
- 147. Visalia
- 148. Stockton
- 149. Bakersfield
