California Housing Affordability Lowest in 16 Years

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California Housing Affordability Lowest in 16 Years

A "For Sale by Owner" sign is posted in front of property in Monterey Park, California on April 29, 2020. (Photo by Frederic J. Brown/AFP via Getty Images)

Travis Gillmore

Travis Gillmore

8/17/2023

Updated: 12/30/2023

Only 16 percent of Californians can afford to purchase a home, the lowest number since before the financial crisis in 2007, according to a recently released report by the California Association of Realtors.
Lack of supply, high interest rates, and elevated home prices are all contributing factors, according to experts.
“The primary solution to resolving this issue is getting more supply,” Oscar Wei, deputy chief economist with the California Association of Realtors, told The Epoch Times. “Developers seem to be building more now, but it’s far from ideal.”
The organization’s Housing Affordability Index highlights significant changes in the annual income required to own a home in the Golden State, identified by analyzing down payment and mortgage costs compared to incomes.
Statewide in 2023, $208,000 a year is needed to buy a single-family house, and those looking for condos need to earn $160,000, the study found.
With a median income of less than $34,000 across the state, according to 2020 Census Bureau statistics, many families make far less than is needed to secure a mortgage.
Additionally, single-family house prices have increased significantly over the past 16 years, climbing from an average near $500,000 to approximately $830,000 today, according to the realtors’ association.
Interest rates have also played a role in the decrease in affordability, according to experts.
Housing affordability hit a low in 2007, hovering around 11 percent, when interest rates were in the same 6 percent range as this year after incrementally increasing over the last two years, according to the report.
“The shock is when you experience the 3.5 percent interest rate in 2020 and 2021, and that actually resulted in a faster pace of increase in home prices,” Mr. Wei said. “And then the interest rate doubled, and that makes it really tough on home buyers.”
Lower interest rates facilitated home purchases and led to a run-up in prices, and the subsequent interest rate increase resulted in many not wanting to sell their homes, as doing so would cause them to pay a higher interest rate when they buy a new home, he said.
“Not only do you have housing affordability issue, but even if they are capable of doing so, they may not want to do so because it’s a huge tradeoff,” Mr. Wei said.
The prospect of trading a 3 percent mortgage for one closer to 6 or 7 percent is preventing many would-be sellers from listing their homes, thus leading to a supply issue that is sustaining prices, he said.
Inflation over the last three years has also driven up the price of new home construction, impacting housing costs.
“We have been seeing some inflation, so home prices increasing to a certain level is not a surprise,” Mr. Wei said.
Wage growth, on the other hand, has not kept up with the increased cost of owning a home, according to the report.
Several Bay Area residents told The Epoch Times that buying a home today is out of the question.
“My husband and I both work full-time, and we are trying to save for a house,” Alameda resident Desiree Morales said. “When we look at how much we need to save, it feels like it’s impossible.”
Home prices average nearly $1.3 million in Alameda, which would require a down payment of $260,000, monthly payments totaling approximately $8,000, and a qualifying income of $320,000, according to the report.
Los Angeles County prices averaged $760,000, Orange County homes $1.25 million, and San Mateo County—home to Silicon Valley, south of San Francisco—housing prices topped the list at more than $2 million.
Given the current economic conditions, Mr. Wei anticipates affordability concerns continuing.
“With interest rates remaining high, and it appears they will continue to remain high ... for the next couple of quarters we may see the housing affordability remain around 16 percent,” he said. “Going into the second half of 2024, hopefully we see some improvement, and we’ll see prices inch up ... but interest rates should come down.”
With a longer timeline, the economist sees a modest recovery possible within the next few years.
“It’s possible to get back to [25 percent] in the next three years or so, but in the next few quarters it’s going to be difficult because of the higher interest rates and home prices,” Mr. Wei said.
Travis Gillmore

Travis Gillmore

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Travis Gillmore is an avid reader and journalism connoisseur based in California covering finance, politics, the State Capitol, and breaking news for The Epoch Times.

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