Elevated interest rates and home inventory shortage keep California housing affordability at 16-year low, C.A.R. reports

News provided by

Feb 08, 2024, 11:00 ET

Fifteen percent of California households could afford to purchase the $833,170 median-priced home in the fourth quarter of 2023, unchanged from 15 percent in third-quarter 2023 and down from 17 percent in fourth-quarter 2022.
A minimum annual income of $222,800 was needed to make monthly payments of $5,570, including principal, interest and taxes on a 30-year fixed-rate mortgage at a 7.39 percent interest rate.
Twenty-two percent of home buyers were able to purchase the $650,000 median-priced condo or townhome. A minimum annual income of $174,000 was required to make a monthly payment of $4,350.

Infographic: https://www.car.org/Global/Infographics/HAI-2023-Q4

LOS ANGELES, Feb. 8, 2024 /PRNewswire/ -- Elevated borrowing costs and a shortage of available homes for sale in the fourth quarter of 2023 kept California housing affordability suppressed at the lowest level in 16 years, the CALIFORNIA ASSOCIATION OF REALTORS^® (C.A.R.) said today.

Elevated interest rates and home inventory shortage keep California housing affordability at 16-year low.

While unchanged from third-quarter 2023, only 15 percent of home buyers could afford to purchase a median-priced, existing single-family home in California in fourth-quarter 2023. The fourth quarter 2023 figure was down from 17 percent a year ago, according to C.A.R.'s Traditional Housing Affordability Index (HAI). The fourth-quarter 2023 figure is less than a third of the affordability index peak high of 56 percent in the first quarter of 2012.

C.A.R.'s HAI measures the percentage of all households that can afford to purchase a median-priced, single-family home in California. C.A.R. also reports affordability indices for regions and select counties within the state. The index is considered the most fundamental measure of housing well-being for home buyers in the state.

A minimum annual income of $222,800 was needed to qualify for the purchase of a $833,170 statewide median-priced, existing single-family home in the fourth quarter of 2023. The monthly payment, including taxes and insurance (PITI) on a 30-year, fixed-rate loan, would be $5,570, assuming a 20 percent down payment and an effective composite interest rate of 7.39 percent. This marked the second consecutive quarter that the effective interest rate rose above 7 percent in more than two decades. The effective composite interest rate was 7.14 percent in third-quarter 2023 and 6.8 percent in fourth-quarter 2022.

While interest rates have trended downward for most of fourth-quarter 2023, dropping about 100 basis points from the peak recorded in mid-October, they have leveled off in recent weeks and remained elevated since the start of 2024. Moreover, as recent economic data continues to defy expectations of a slowing economy, the Federal Reserve could hold off on rate cutting at their upcoming March meeting. As such, rates are expected to remain elevated through the first half of the year and will continue to put downward pressure on affordability.

The median price of condominiums and townhomes in California held up better than single-family homes from both the previous quarter and a year ago. As a result, the share of households that could afford a typical condo/townhome in fourth-quarter 2023 dipped to 22 percent from the 23 percent recorded in the previous quarter and was down from the 26 percent recorded in the fourth quarter of 2022. An annual income of $174,000 was required to make the monthly payment of $4,350 on the $650,000 median-priced condo/townhome in the fourth quarter of 2023.

Compared with California, more than a third of the nation's households could afford to purchase a $391,700 median-priced home, which required a minimum annual income of $104,800 to make monthly payments of $2,620. Nationwide affordability was down from 38 percent a year ago.

Key points from the fourth-quarter 2023 Housing Affordability report include:

When compared to the previous quarter, housing affordability declined in 15 counties and remained unchanged in 17. Nineteen counties showed quarter-to-quarter improvements in affordability due to more modest price declines in comparison to other counties during that same time period. Compared to a year ago, five counties saw an improvement in affordability, while 39 counties recorded a decline on a year-over-year basis, and seven remained unchanged.
Lassen (49 percent) remained the most affordable county in California. Together with Tehama (40 percent), they were the only two counties to record an affordability index of 40 percent or higher in the fourth quarter of 2023. Shasta (36 percent) trailed behind as a distant third, making them the only three counties in California to record an affordability greater than 35 percent – all located in the Far North region of the State. Of all counties in California, Lassen required the lowest minimum qualifying income ($66,800) to purchase a median-priced home in fourth-quarter 2023.
Mono (5 percent), Monterey (8 percent), and San Luis Obispo (8 percent) were the least affordable counties in California, with each county requiring at least a minimum income of $242,800 to purchase a median-priced home in their counties. San Mateo continued to require the highest minimum qualifying income ($518,400) to buy a median-priced home in the fourth quarter of 2023 and was the only county in California that required a minimum qualifying income more than $500,000. Santa Clara County came in second with a minimum required income of $468,000, followed by Marin ($441,200).
Housing affordability declined the most on a year-over-year basis in Mariposa, falling nine points from fourth-quarter 2022 to fourth-quarter 2023. Kings, Stanislaus and Yuba registered the second biggest drop in affordability, moving six points below the same quarter of last year, followed closely by San Bernardino, Glenn, Merced, Sacramento and Lassen, each dropping five points from a year ago. Despite higher household income, higher home prices and elevated mortgage rates continued to keep costs of borrowing near all-time highs and housing affordability near all-time lows across most counties.

See C.A.R.'s historical housing affordability data.
See first-time buyer housing affordability data.

Leading the way…® in California real estate for more than 117 years, the CALIFORNIA ASSOCIATION OF REALTORS® (www.car.org) is one of the largest state trade organizations in the United States with more than 200,000 members dedicated to the advancement of professionalism in real estate. C.A.R. is headquartered in Los Angeles.

CALIFORNIA ASSOCIATION OF REALTORS® Traditional Housing Affordability Index Fourth quarter 2023

Fourth Qtr. 2023	C.A.R. Traditional Housing Affordability Index
STATE/REGION/COUNTY	4 Qtr. 2023	2 Qtr 2023	4 Qtr 2022		Median Home Price	Monthly Payment Including Taxes & Insurance	Minimum Qualifying Income
Calif. Single-family home	15	15	17		$833,170	$5,570	$222,800
Calif. Condo/Townhome	22	23	26		$650,000	$4,350	$174,000
Los Angeles Metro Area	14	14	18		$775,000	$5,180	$207,200
Inland Empire	20	20	23		$565,510	$3,780	$151,200
San Francisco Bay Area	19	19	20		$1,230,000	$8,220	$328,800
United States	35	34	38		$391,700	$2,620	$104,800

San Francisco Bay Area
Alameda	16	16	18	r	$1,210,000	$8,090	$323,600
Contra Costa	23	22	25		$830,000	$5,550	$222,000
Marin	16	18	18		$1,649,500	$11,030	$441,200
Napa	16	15	16		$909,000	$6,080	$243,200
San Francisco	20	21	20		$1,565,000	$10,460	$418,400
San Mateo	17	17	19		$1,938,400	$12,960	$518,400
Santa Clara	18	17	20		$1,750,250	$11,700	$468,000
Solano	25	24	27		$580,000	$3,880	$155,200
Sonoma	15	15	17		$825,000	$5,520	$220,800
Southern California
Los Angeles	11	11	13		$884,410	$5,910	$236,400
Orange	11	11	13		$1,299,500	$8,690	$347,600
Riverside	19	19	21		$619,000	$4,140	$165,600
San Bernardino	24	25	29		$488,970	$3,270	$130,800
San Diego	11	11	15		$931,600	$6,230	$249,200
Ventura	13	13	16		$899,950	$6,020	$240,800
Central Coast
Monterey	8	9	12		$994,000	$6,640	$265,600
San Luis Obispo	8	10	11		$907,500	$6,070	$242,800
Santa Barbara	10	10	11		$1,094,350	$7,320	$292,800
Santa Cruz	13	13	13		$1,200,000	$8,020	$320,800
Central Valley
Fresno	28	27	30		$405,680	$2,710	$108,400
Glenn	30	30	35		$349,750	$2,340	$93,600
Kern	28	28	30		$380,000	$2,540	$101,600
Kings	29	27	35		$362,000	$2,420	$96,800
Madera	29	29	31		$416,000	$2,780	$111,200
Merced	29	30	34		$385,000	$2,570	$102,800
Placer	28	27	29		$650,000	$4,350	$174,000
Sacramento	23	23	28		$535,000	$3,580	$143,200
San Benito	15	16	18		$780,000	$5,210	$208,400
San Joaquin	22	23	26	r	$546,100	$3,650	$146,000
Stanislaus	23	24	29		$465,000	$3,110	$124,400
Tulare	31	30	32		$365,000	$2,440	$97,600
Far North
Butte	29	28	29		$420,830	$2,810	$112,400
Lassen	49	58	54		$249,500	$1,670	$66,800
Plumas	33	31	31		$390,000	$2,610	$104,400
Shasta	36	35	39		$366,500	$2,450	$98,000
Siskiyou	32	34	31		$306,250	$2,050	$82,000
Tehama	40	39	40		$308,440	$2,060	$82,400
Other Calif. Counties
Amador	31	26	34		$410,000	$2,740	$109,600
Calaveras	31	27	30		$446,000	$2,980	$119,200
Del Norte	26	28	25		$410,000	$2,740	$109,600
El Dorado	23	23	25		$655,500	$4,380	$175,200
Humboldt	24	23	24		$429,500	$2,870	$114,800
Lake	28	30	28		$332,500	$2,220	$88,800
Mariposa	18	16	27		$442,000	$2,950	$118,000
Mendocino	18	15	14		$477,500	$3,190	$127,600
Mono	5	5	7		$1,027,500	$6,870	$274,800
Nevada	24	23	27		$543,000	$3,630	$145,200
Sutter	31	31	33	r	$418,750	$2,800	$112,000
Tuolumne	32	31	36		$403,750	$2,700	$108,000
Yolo	22	23	24		$627,740	$4,200	$168,000
Yuba	24	26	30		$436,250	$2,920	$116,800

r = revised

Traditional Housing Affordability Indices (HAI) were calculated based on the following effective composite interest rates: 7.39% (4Qtr. 2023), 7.14% (3Qtr. 2023) and 6.8% (4Qtr. 2022).

SOURCE CALIFORNIA ASSOCIATION OF REALTORS