Household income of $237,000 needed to buy a median-priced home in the state
Affordability dropped to near a record-low during the second quarter in California, as fast-rising home prices easily outpaced wage gains – and mortgage payments became too much for many potential buyers.
About one of every seven (14%) households could afford to buy a median-priced home in the state during the April through June period, compared to 17% in the first quarter and 16% a year ago (see table, below), according to the California Association of Realtors.
The figure is about one-third the modern-day record high of 56% in second-quarter 2012, when the housing market was attempting to recover from the Great Recession and prices were cut in half in many of the markets in California.
HALF A MILLION-DOLLAR INCOME NEEDED IN THE BAY AREA
Those able to buy will need to earn a lot of money – a record $237,000 of household income – and make a hefty $5,920 mortgage payment for the statewide figure. The income and payment figures are based on a 20% down payment, or about $180,000.
A household income of $524,000 or more was needed in San Mateo and Santa Clara counties.
CAR’s closely watched affordability report is based on figures during the second quarter when mortgage rates were about a half-percentage point higher than today (Aug. 15, 2024). So, affordability is likely better with the lower rates today, but higher prices remain a stumbling block for a large majority of home shoppers.
“Housing affordability will improve in the upcoming months,” says Lawrence Yun, chief economist for the National Association of Realtors. “Mortgage rates have fallen measurably and more supply is reaching the market. Therefore, the income required to buy will decrease.”
Redfin estimates the average monthly payment has reached a six-month low, saving the average buyer hundreds of dollars every month.
But is the half-point decline “enough to motivate buyers,” says Altos Research president Mike Simonsen.
If they can even afford to buy.
California has 7 of the 10 most expensive U.S. markets
- San Jose: $2 million
- San Francisco: $1.45 million
- Anaheim-Irvine: $1.44 million
- Salinas: $1.04 million
- Ventura-Thousand Oaks: $128,000
- San Luis Obispo: $893,000
Source: National Association of Realtors
Master-planned community-turned-city Irvine in Southern California boasts some of the highest home prices in the U.S. SHUTTERSTOCK
Seven of the 10 most expensive housing markets in the nation are in California, including San Jose becoming the first-ever $2 million market, according to the National Association of Realtors. And three of those markets – Santa Ana-Irvine, San Diego and Salinas-Monterey – reported double-digit price increases during the second quarter compared to a year ago.
BEACH BUMMER
Affordability was the lowest along the Central Coast and Southern California, where about one of every 10 households could afford to buy the median-priced home in their regions.
The Bay Area – always the most expensive – fared a bit better with all eight counties matching or exceeding the statewide affordability rate. About one of every five households could afford to buy in Contra Costa and San Francisco.
The Central Valley, from Bakersfield to Sacramento, and the Far North – from about Chicho to Crescent City – are the most affordable regions, with about 25% to 50% of residents able to buy a home.
Mono County, where home prices often top $1 million and wages are low, was the least affordable county in California at 5%.
All of this comes as more Californians consider leaving the Golden State for another state, largely because of home prices. While other states are more affordable, they are far from cheap compared to just a few years. ago.
Nationwide, about one-third of households could afford to buy the $422,000 median-priced home – but about $500,000 cheaper than a comparable home in California. The average buyer nationwide needs a household income of about $110,000 to qualify for a mortgage.
SOME FINAL THOUGHTS WHEN IT COMES TO THE AFFORDABILITY RATE
It’s important to remember that CAR’s affordability index – arguably one of the best in the nation – is based on the median-priced home, meaning half the homes cost more, the other half for less. Buyers could always find a more affordable home.
Also, the affordability rate is based on a 20% down payment, so more money down will reduce the mortgage payment. And smaller down payment would generate a larger payment.
Finally, the mortgage payment estimate is for a 30-year period, and some buyers would like a 20-year mortgage – and pay more every month but spend less on interest over time. Others may want a 40-year loan, some lenders offer them, and then the monthly payments are smaller but the interest paid out is a lot more.
Feature photo: A home for sale in Mountain View.
Affordability rate by county for Q2 2024
| City/County | Q2 affordability rate | Household income needed | Monthly mortgage payment |
|---|---|---|---|
| California | 14% | $236,800 | $5,920 |
| Bakersfield | 30% | $100,400 | $2,510 |
| Fresno | 28% | $110,800 | $2,770 |
| Los Angeles | 13% | $223,200 | $5,580 |
| Orange | 11% | $375,200 | $9,380 |
| Redding | 33% | $99,200 | $2,480 |
| Riverside | 18% | $169,600 | $4,240 |
| Sacramento | 24% | $144,800 | $3,620 |
| San Diego | 11% | $274,000 | $6,850 |
| San Francisco | 19% | $444,000 | $11,100 |
| San Jose | 16% | $524,000 | $13,100 |
| San Luis Obispo | 11% | $232,000 | $5,800 |
| Stockton | 24% | $143,600 | $3,590 |
Source: California Association of Realtors
Many deep-pocketed buyers are avoiding higher mortgage rates and paying cash for multimillion-dollar homes. ADOBE STOCK
The rich keep buying luxury homes
High-end buyers continue to shrug off higher interest rates as luxury home prices and sales increased during the second quarter from a year ago in California.
Many rich buyers are paying cash for homes with little – or no – worry about higher interest rates and larger mortgage payments.
California luxury home prices – considered the top 5% of sales in a market – have increased almost 7% from a year ago, while sales are up 3.5% for the same period, based on an aggregate of data collected from eight major markets.
Overall home prices, regardless of price, increased 7.5% in June, compared to a year ago, according to the California Association of Realtors. Luxury home sales are faring better than the overall market, where sales have dropped almost 3% from a year ago.
HIGH-END HOMES, HIGHER PRICES
Luxury home prices increased in all eight markets surveyed (see table, below), including an impressive 16.4% in the San Jose area. San Francisco and Anaheim prices were up 8% from a year ago.
“The luxury market has withstood the havoc wreaked by high mortgage rates this year, thanks to an abundance of all-cash buyers,” says Redfin senior economist Sheharyar Bokhari. “Now that sales are stabilizing and more homes are being listed for sale, it’s unlikely that luxury prices will continue to grow at quite as high a rate.”
Maybe, but with fewer homes on the market, the supply-demand squeeze is in full force. Six of the eight markets had sales increases, with double-digit gains in San Francisco and Oakland.
However, Sacramento – one of the most affordable markets in the state, regardless of price range – had a 9% drop in luxury home prices, likely because of a decline in higher-priced properties.
Higher mortgage rates also likely affected buyers in the capital region, where about three of every 10 buyers paid with cash during the second quarter, one of the lowest figures in the state, according to ATTOM Data. All-cash deals accounted for about one of every three home sales statewide.
Luxury home prices increase in second quarter
| Metro | Sales price | % compared to a year ago | Home sales compared to a year ago |
|---|---|---|---|
| Anaheim-Irvine | $4 million | +8.1% | +6.8% |
| Los Angeles | $3.45 million | +7.0% | +4.6% |
| Oakland | $2.9 million | +6.6% | +12.3% |
| Riverside | $1.4 million | +5.5% | +0.1% |
| Sacramento | $1.6 million | +4.7% | -9.0% |
| San Diego | $3.38 million | +7.1% | +0.7% |
| San Francisco | $5.2 million | +8.3% | +13.1% |
| San Jose | $4.83 million | +16.$% | No change |
Source: Redfin
Buying a house is a financial challenge for many Californians. But many homeowners are also enjoying some of the most significant equity gains in recent years. SHUTTERSTOCK
Almost 60% of homeowners in California are ‘equity rich’
Many homeowners are sitting on a ton of equity, thanks to big price gains during the past few years in California.
Almost three of every five (59.4%) homeowners had more equity than mortgage debt in the second quarter, based on the current value of their home, according to ATTOM Data.
These so-called “equity-rich” owners can tap the dollars to buy a car, embrace a home-improvement project, pay off credit-card balances or help a child with college. Of course, they will likely have a higher interest rate than their current mortgage, but the dollars are available if needed.
“Homeowner wealth took a notable turn for the better during the second quarter as equity levels piggybacked on some of the biggest home-price spikes we’ve seen in recent years,” says Rob Barber, CEO of ATTOM. “After a period where equity seemed stagnant or even declining, this brought another boost of good news for homeowners from the enduring housing market boom. Supplies of homes for sale remain limited these days and buyer demand is typically elevated during the Summertime. So, it should be no surprise if home values go even higher and take equity along for the ride.”
| Metro | % equity rich in Q2 ’24 |
|---|---|
| California | 59.4% |
| Bakersfield | 44.6% |
| Fresno | 49.9% |
| Los Angeles | 65.3% |
| Riverside | 53.0% |
| Sacramento | 50.2% |
| San Diego | 65.4% |
| San Francisco | 62.2% |
| San Jose | 70.4% |
Source: ATTOM Data
BAKERSFIELD BLUES, BUT MAYBE NOT FOR LONG
At least half of homeowners in seven of the eight regions in California surveyed were considered equity rich, with San Jose leading the nation at 70% (see table, below). Silicon Valley has enjoyed a huge spike in price increases, largely because more buyers – including many with tech-sector careers – are competing for fewer homes.
More than three of every five homeowners in San Diego, Los Angeles and San Francisco were considered “equity rich.”
Bakersfield is the only region where a majority of homeowners deal with more debt than equity, though they are getting rather close at 45%, compared to the national rate of 49%.
