Home affordability falls to the lowest level since 2007

Average homebuyer in the second quarter needed to earn $200,000 in California

Buying a home has become increasingly challenging, if not impossible, for many potential buyers in California and nationwide.

The average homebuyer in America had to spend more than one-third (35%) of their household income to qualify for a mortgage with a 20% down payment during the second quarter, the highest level since 2007 – the beginning of the housing market collapse and the Great Recession, according to ATTOM Data.

In California, the average consumer needed to spend about 57% of their household income to buy a home, based on an aggregate of 10 regions in the state. The figure is more than double the common 28% lending guideline.

ATTOM Data determines affordability – and how much income is needed for the mortgage payment – based on a 20% down payment for the median-priced home sold during the second quarter in the county or region, from Crescent City to San Diego. The average down payment is about 18% in California, according to the National Association of Realtors.

The California Association of Realtors estimates that fewer than one of every five households could afford to buy the median-priced home in their community during the first quarter. CAR also uses a 20% down payment requirement for its report.



TAKES EVERY DOLLAR TO BUY IN FOUR CALIFORNIA COUNTIES, 57% OF INCOME STATEWIDE

The biggest challenge is that home price increases are outpacing wage growth in seven of those markets (see table, below). Eight of the nation’s 10 least affordable counties are in California, including three of the top five. Every dollar – and then a few more – is needed for homebuyers in Santa Cruz, Marin, Orange and Monterey counties.

Add higher mortgage rates – they have been on a rollercoaster-like ride for several months – and affordability is a big concern. The Federal Housing Finance Agency reports the average mortgage payment has increased about $600 during the past three years in California, which includes all outstanding mortgages.

“The latest affordability data presents a clear challenge for home buyers,” says ATTOM CEO Rob Barber. “While home prices are increasing and mortgage rates remain relatively high, these factors are making homes less affordable. It’s common for these trends to intensify during the spring buying season when buyer demand increases. However, the trends this year are particularly challenging for house hunters, more so than at any point since the housing market boom began in 2012.”



CATCH-22: ‘FALLING RATES WILL SPUR DEMAND FASTER THAN SUPPLY’

Consider this: Half of the 10 regions in the state demand annual household income of at least $200,000, including $$395,000 in San Jose and $340,000 in San Francisco. 

Three cities – Bakersfield, Fresno and Redding – are below $100,000, but few households earn that much in those regions. The average household in those cities would need to spend at least 40% of their income on the monthly mortgage payment.

Fast-rising prices and still-elevated mortgage rates are creating a wait-and-see attitude for many wanna-be buyers. But a dip in mortgage rates – likely with the latest inflation figures – could just create another challenge for home shoppers, experts say.

“If rates jump from here … you will see a very quick slowdown of buyers,” says Mike Simonsen, president of Altos Research. “Falling rates will spur demand faster than supply.”

MetroMedian sale price% vs. a year agoIncome to buy% of income for mortgage
Bakersfield$350,000+6%$89,10043.2%
Fresno$39,0000%$97,37748.5%
Los Angeles$890,000+7%$218,52456.1%
Orange County$1.19 million+16%$287,358103%
Redding$338,500-7%$83,99341.2%
Riverside$609,000+5%$153,12174.4%
Sacramento$525,000+6%$130,70947.7%
San Diego$900,000+7%$219,23677.2%
San Francisco$1.37 million0%$339,98157%
San Jose$1.62 million10%$395,00063.3%

Source: ATTOM Data


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