Household income of $232,000 needed to purchase
California’s affordability rate inched lower in recent months, as higher mortgage rates and near-record home prices slammed the door on many would-be buyers during the second quarter.
But slightly lower mortgage rates could creep the door open for some home shoppers. Although home prices remain the largest hurdle in the homeownership race.
Fewer than one of every seven (15%) households could afford to buy the median-priced home in the April-June period – and they would need to earn at least $232,000 based on a 20% down payment, according to the California Association of Realtors.
The latest affordability figure compares to 17% in the first quarter – when mortgage rates dipped slightly – and 14% during the second quarter.
Those rates are dramatically lower from the modern-day record high of 56% during second-quarter 2012, when many home prices were cut in half from the housing collapse that prompted the Great Recession.
What is the affordability rate?
The affordability rate is based on the median-home price – meaning half the homes sell for more, the other half for less — and household income in California, several regions and the county.
The rate is based on a 20% down payment, so buyers with a larger down payment will enjoy a smaller payment. Those with a smaller down payment will endure a larger payment.
Affordability rate by county for Q2 2025
| City/County | Q3 affordability rate | Household income needed | Monthly mortgage payment |
|---|---|---|---|
| California | 15% | $232,400 | $5,810 |
| Bakersfield | 30% | $104,000 | $2,600 |
| Fresno | 30% | $111,600 | $2,790 |
| Los Angeles | 13% | $226,000 | $5,650 |
| Orange | 12% | $367,600 | $9,190 |
| Redding | 33% | $97,200 | $2,430 |
| Riverside | 21% | $164,400 | $4,110 |
| Sacramento | 27% | $141,200 | $3,530 |
| San Diego | 13% | $263,200 | $6,580 |
| San Francisco | 19% | $459,200 | $11,480 |
| San Jose | 17% | $548,800 | $13,720 |
| San Luis Obispo | 12% | $236,000 | $5,900 |
| Stockton | 26% | $145,200 | $3,630 |
Source: California Association of Realtors
WANNA-BE BUYERS IN BEACH COMMUNITIES ARE BUMMED
The Central Coast and Orange County were the most challenging markets for households looking to purchase, ranging from about 10% and 14%.
But perhaps the most alarming was the Central Valley – one of the most affordable regions of the state – where rates dropped to 30% or less. Fewer than one of every three households could afford to buy in Bakersfield, Fresno, Merced, Stockton and the Sacramento-Roseville region, where good-paying state jobs have helped buyers and prop up a rather sluggish market.
How odd is the housing market? The Bay Area, where the median-home price easily exceeds $1.4 million, has a higher percentage of buyers able to purchase than Southern California. In general, Bay Area households – largely thanks to the tech industry – offers better-paying jobs to help offset the higher prices.
‘SQUEEZE IS REALLY ON’
But regardless of where buyers live, they will need a hefty paycheck to make the monthly mortgage payment. For example, a household income of $226,000 is needed to buy the median-priced home in Los Angeles – and meet the $5,650 mortgage payment, which includes property taxes (see table, below).
For many Californians, the monthly payment is just too much, especially as home prices are easily outpacing wage gains, according a recent ATTOM Data second-quarter affordability report.
“The squeeze is really on for would-be buyers as we go into the summer, which is usually when the housing market is most active,” said Rob Barber, CEO of ATTOM. “Prices just continue to rise and there’s been no (significant) relief on mortgage rates. Meanwhile, typical wages are barely increasing from quarter-to-quarter.”
BIGGER CHECKS BUT EVEN BIGGER HOME PRICES
Indeed, since the first quarter of 2020, the median cost to purchase a home in the U.S. has gone up 56%, while the average wage has only risen by 27%, according to the Bureau of Labor of Statistics. (Please note, this is the average wage per employee, not overall household income.)
In California, the difference is smaller. Home prices have increased an aggregate of about 31% over the same five-year period, while incomes have improved 25.4% from Redding to San Diego. But here is the kicker: The disparity would be much larger except Bay Area home prices have only increased 4% since first-quarter 2020, while paychecks have soared more than 35%.
That’s how affordability improved in the Bay Area.
Home prices barely budge, but still demand a chunk of the household budget in Q2
| City | Median-sale price | % vs. a year ago | % of income needed to buy |
|---|---|---|---|
| Bakersfield | $350,500 | No change | 40.9% |
| Fresno | $400,000 | +1% | 47.4% |
| Los Angeles | $900,000 | +1% | 72.6% |
| Redding | $365,500 | +3% | 42.1% |
| Riverside | $600,000 | -1% | 69.5% |
| Sacramento | $517,750 | -2% | 44.9% |
| San Diego | $900,000 | -1% | 72.7% |
| San Francisco | $1.47 million | +7% | 57.7% |
| San Jose | $1.69 million | +4% | 57.2% |
Source: ATTOM Data
‘A WINDOW OF OPPORTUNITY’
Regardless, even with the pint-sized price gains in the Bay Area, 15 of the nation’s 25 least affordable housing markets – and three of the top five – are in California, including Marin, Santa Cruz and San Luis Obispo counties where every dollar earned, and in some cases a few more, are needed to make the mortgage payment (see table, below).
For those looking for a glimmer of hope for the housing market, mortgage rates have dipped in recent weeks, and the Federal Reserve could lower rates by a quarter- to half-point during its meeting in September.
Just a small drop has helped affordability in several cities in California in recent weeks, according to Redfin. But still a large majority of homeowners are unable to purchase the median-priced home, if they can even find one (see table, below).
At least 44% of household income is required for the monthly mortgage payment in California, and often much more, according to the recent Redfin report. Borrowers often prefer around 30%, though it largely depends on a buyer’s credit score, overall debt and income.
“This dip in mortgage rates gives house hunters a window of opportunity to buy before summer ends,” said Redfin chief economist Daryl Fairweather. “While housing costs are still fairly high, the recent decline in rates boosts purchasing power and improves overall home buying.”
The other challenge: Finding an affordable house
| City | % of homes listed affordable for median-income households |
|---|---|
| Anaheim | 5% |
| Los Angeles | 1.1% |
| Oakland | 13.1% |
| Riverside | 10.6% |
| Sacramento | 10.2% |
| San Diego | 4.0% |
| San Francisco | 7.7% |
| San Jose | 9.0% |
Source: Redfin
A COOL (AND CRUEL?) SUMMER
How much rates will need to drop to encourage more would-be buyers is uncertain. Maybe another half to a full point, say some housing experts.
“Affordability matters,” said Mike Simonsen, founder and president of real estate research firm Altos Research in Irvine.
Something else also matters to home shoppers – the economy and job security. “You have a shifting vibe on the economy,” he added.
And that could extend the rather cool summer homebuying season into an even colder fall and winter.
