Buying or renting, affordability is elusive
Buy or rent?
It’s an age-old question that has become a bit easier amid higher mortgage rates and near-record home prices the past few years, forcing many households to hold off purchasing in California.
But there are a few housing markets – including one in Southern California and another on the Central Coast – where buying makes more sense, according to a recent report. It’s an about-face from what has largely been an easy decision, at least when it comes to crunching data and comparing home prices to rent.
Of course, buyers must be able to buy and very few households were during the fourth quarter in California. Fewer than one of every seven households (15%) were able to buy the median-priced home in California – and they would need to earn at least $220,000 to qualify for a long-term mortgage based on a 20% down payment, according to the California Association of Realtors.
It’s the third time in the past six months affordability has dropped to 15%, just a tick better than the modern-day record-low of 14% reached in second-quarter 2024. Affordability has been below 20% for seven consecutive quarters and was last above 30% in second-quarter 2020. The all-time record-low was 11% in third-quarter 2007, when the economy and the housing market collapsed and prompted the Great Recession.
Affordability rate by county for Q4 2024
| City/County | Q4 affordability rate | Household income needed | Monthly mortgage payment |
|---|---|---|---|
| California | 15% | $222,000 | $5,550 |
| Bakersfield | 29% | $102,800 | $2,570 |
| Fresno | 30% | $106,800 | $2,670 |
| Los Angeles | 11% | $238,400 | $5,960 |
| Orange | 12% | $345,200 | $8,630 |
| Redding | 36% | $93,600 | $2,340 |
| Riverside | 20% | $159,600 | $3,990 |
| Sacramento | 25% | $139,600 | $3,490 |
| San Diego | 12% | $250,000 | $6,250 |
| San Francisco | 21% | $406,000 | $10,150 |
| San Jose | 18% | $487,600 | $12,190 |
| San Luis Obispo | 10% | $236,000 | $5,900 |
| Stockton | 26% | $137,200 | $3,430 |
Source: California Association of Realtors
A BRIEF RECORD HIGH AND A LONG SLIDE DOWN
The Great Recession caused a great deal of pain, but also an opportunity for those able to purchase. The affordability rate reached a record-high 56% in first-quarter 2012, when many home prices were cut in half and foreclosures were more common than sales. It’s been largely downhill since.
Fast-forward a dozen years, and affordability is again a major concern from Chula Vista near San Diego to Crescent City just a few miles from the Oregon border. Higher mortgage rates coupled with home prices have landed a one-two punch on potential buyers – and sucker-punched the state.
How staggering are home prices statewide? Well, the Bay Area — where five of the nine counties have median-home prices above $1 million and two are $1.9 million or more – has become more affordable than the lower-priced Los Angeles region and the same rate as the Inland Empire (also known as Riverside and San Bernardino counties), considered an affordable housing market in Southern California. And Los Angeles has become less affordable in recent weeks following the devastating wildfires, which has greatly increased the demand for housing in an already constrained market.
The Central Coast – from Santa Barbara to Santa Cruz – is the hardest market for homebuyers, with only one of every 10 (10%) of households able to buy the American Dream. But affordability has even become a challenge for the Central Valley and the Far North (Chico to Eureka), often considered the most affordable markets in the state. Today, fewer than one of every three residents could afford to buy in those regions, lower than the national average of 36%.
Rents go up, down — and still take a big chunk of income in Q4 2024
| City | 3-bedroom rental home | % increase/drop from a year ago | % of income spent on rent |
|---|---|---|---|
| Bakersfield | $2,200 | +4.8% | 45% |
| Fresno | $2,250 | No change | 48% |
| Los Angeles | $4,800 | -9.4% | 72% |
| Riverside | $4,500 | -6.3% | 91% |
| Sacramento | $2,595 | +4.0% | 40% |
| San Diego | $4,150 | -3.4% | 63% |
| San Francisco | $5,500 | +10.2% | 10.2% |
| San Jose | $4,300 | +2.5% | 27% |
Source: ATTOM Data
BUY OR RENT? IT DEPENDS ON WHERE YOU LIVE
But the difference between buying and renting is narrowing, at least in a handful of markets in California, according to ATTOM Data. It’s a benefit — and a challenge.
Bakersfield, Riverside, Santa Barbara County and Tulare County (think Visalia-Tulare-Porterville) are more affordable markets, where consumers will spend less of their income as homeowners with a monthly mortgage payment than renting a three-bedroom home. But buying will take a big chunk of the paycheck, about 42% in Bakersfield to 71% in Riverside, even with the 20% down payment figure that ATTOM used for the report (see tables, above and below for a comparison).
Renting is still the financially smart choice in many other markets in California, such as the Bay Area, the Sacramento region, Los Angeles and San Diego.
“Buying or renting a home in the U.S. these days can be like searching for a diamond in a pile of marbles, and it’s only getting worse in most markets as the cost of both goes up,” says ATTOM CEO Rob Barber. “However, in most parts of the country, homeownership is somewhat more attainable for those who can gather the necessary resources to cover down payments that often surpass $200,000. (But) the current situation is tenuous, especially if mortgage rates keep going back up like they have in the past couple of months.”
Home prices increase and demand more of income in Q4 2024
| City | Median home price | % increase/drop from a year ago | % of income spent on housing |
|---|---|---|---|
| Bakersfield | $350,000 | +4.2% | 42% |
| Fresno | $400,000 | +3.0% | 49% |
| Los Angeles | $945,000 | +6.8% | 80.1% |
| Riverside | $615,000 | +4.2% | 71.4% |
| Sacramento | $535,000 | +4.9% | 47.4% |
| San Diego | $990,000 | +7.6% | 83.6% |
| San Francisco | $1.55 million | +3.3% | 65.1% |
| San Jose | $1.83 million | +9.3% | 64.3% |
Source: ATTOM Data
THE COST-BURDENED HOUSING CRUNCH
The down payment is the hardest hurdle for a large majority of wanna-be owners. Many renters are spending more than they should, making saving enough money for a down payment tough, according to two reports.
The average renter in California spends about $3,500 to almost $37,800 more than they should on rent, according to Redfin. Only San Jose-area renters, who have hefty rents but often earn higher wages, are the only of the six regions where housing costs are in line with the long-accepted amount of 30% or less (see table, below).
Higher rents, smaller paychecks leads to spending too much on housing
| City | Median asking rent | Income needed to not exceed 30% for rent | Actual income of renters vs. income needed |
|---|---|---|---|
| Los Angeles | $2,780 | $111,200 | -$37,781 |
| Riverside | $2,266 | $90,640 | -$27,748 |
| Sacramento | $1,964 | $78,560 | -$12,914 |
| San Diego | $2,831 | $113,240 | -$34,883 |
| San Francisco | $2,695 | $107,800 | -$3,487 |
| San Jose | $3,175 | $127,000 | +$524 |
Source: Redfin
About half of renters in California are considered cost-burdened, spending at least 30% of their household income on rent, according to the Joint Center for Housing Studies of Harvard University. And the percentage of financially strapped renters continues to rise.
Almost three of every five (57.3%) renters in the Sacramento region are considered cost-burdened, the highest figure among the major metros in California. The Bay Area – San Jose at 44.6% and San Francisco at 47.2% — have fewer cost-burdened renters, as higher household income in the region helps offset some of the priciest rents in the state (see list, below).
“Rental affordability will continue improving this year, as wages grow and rents remain flat, thanks to the recent boom in apartment construction,” says Redfin senior economist Sheharyar Bokhari. “The affordability gap between renting and buying is likely to widen further in 2025, as home prices rise and mortgage rates remain high. That means potential homebuyers, especially from younger generations, may decide to continue renting for longer, as it’s the only affordable option.”
More than one of every five (21.2%) renters had lived in their apartment or single-family home for at least a decade in 2023, compared to 14.5% a decade earlier, according to Redfin. Los Angeles, where buying a house has become more challenging than ever, had the highest percentage, with 28% of decade-or-longer renters of the same home.
Percentage of cost-burdened renters
- Bakersfield: 56%
- Fresno: 54.7%
- Los Angeles: 56.1%
- Riverside: 56.5%
- Sacramento: 57.3%
- San Diego: 56.7%
- San Francisco: 47.2%
- San Jose: 44.6%
Source: Joint Center for Housing Studies of Harvard University
“Affordability is challenged,” says Mike Simonsen, founder and president of Altos Research. “Home prices have to come up down and wages have to go up.”
