The affordability of housing in California has hit a new low, reaching its worst point in nearly 17 years during the second quarter of 2024. This decline is driven by a confluence of factors, primarily soaring home prices and elevated mortgage rates, pushing borrowing costs to all-time highs.
According to the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.), a mere 14% of California households could afford to purchase a median-priced, existing single-family home in the second quarter of 2024. This represents a significant drop from the 17% recorded in the first quarter of 2024 and the 16% observed in the second quarter of 2023. Furthermore, the affordability index for the second quarter of 2024 is less than a third of the peak observed in the second quarter of 2012, when it reached 56%.
The required minimum annual income to qualify for a $906,600 median-priced home in California during the second quarter of 2024 was a staggering $236,800. This income level would allow for a monthly payment of $5,920, encompassing principal, interest, taxes, and insurance (PITI), assuming a 20% down payment and an effective composite interest rate of 7.10%.
The monthly PITI for a typical single-family home in California has also reached a record high, showing double-digit increases from both the previous quarter and the same period last year.
While mortgage rates did rise in the second quarter, recent signs of weakness in macroeconomic reports have led to a slight decrease in rates over the past few weeks. This, coupled with the growing likelihood of the Federal Reserve cutting interest rates at its September meeting, suggests potential improvement in housing affordability in California in the coming quarter.
In addition to single-family homes, affordability for condos and townhomes also decreased in the second quarter of 2024. Only 22% of California households could afford to purchase a median-priced condo/townhome, down from 24% in the previous quarter and 25% in the second quarter of 2023. An annual income of $180,000 was needed to make the monthly payment of $4,500 on a $690,000 median-priced condo/townhome.
Despite the challenges, there are signs of potential improvement. As the market moves past the spring home-buying season and transitions into the off-season, market competition is expected to cool, and housing inventory is likely to increase. Furthermore, a consistent drop in mortgage rates anticipated in the coming months could lead to lower borrowing costs and improved affordability for the remainder of the year.
The C.A.R. Housing Affordability Index provides a detailed analysis of housing affordability across different regions and counties in California. This valuable resource offers insights into the dynamic housing market and highlights the key factors influencing affordability in various parts of the state.
