High home prices compared with the rest of the nation are nothing new for California, but prices now have soared to about double the national average.
An Aug. 6 report from the nonpartisan Legislative Analyst’s Office details the housing affordability issues that are plaguing many Californians.
The price of a mid-tier California home, $787,000, is more than twice that of a mid-tier home nationwide, $363,000, the analysts found.
The bottom third of Golden State homes now cost about 32 percent more than the middle third of homes in the rest of the nation, according to the report. That makes buying a first home a challenge for many Californians.
Since 2020, monthly payments—including mortgage, taxes, and homeowner’s insurance—have increased “dramatically” for newly purchased homes, the report concluded.
As of June 2024, California homeowners are paying about $6,000 a month—84 percent more than in January 2020—for mid-tier homes, analysts calculated. Bottom-tier home payments amounted to more than $3,600 per month—a spike of 89 percent over the same period.
Higher home prices, interest rates, and insurance costs are to blame for the rapid increase in monthly costs, according to the report.
“When both mortgage rates and prices increase, there is a compounding effect on monthly home payments,” analysts wrote.
Since the pandemic, as the Federal Reserve raised interest rates to fight inflation, the prevailing mortgage rate on a 30-year fixed rate loan rose from 2.7 percent in January 2021 to 7.6 percent in October 2023, before easing to 6.9 percent in June 2024, the analysts said.
Also driving affordability concerns was lagging wage growth. While average hourly wages have risen about 21 percent since early 2020, monthly payments have risen 84 percent for mid-tier homes and 89 percent for bottom-tier houses.
The annual household income needed to qualify for a mortgage to buy a mid-tier California home in June 2024 is about $239,000, which is more than two times the median household income for such homeowners two years ago. Prospective buyers of bottom-tier homes need to bring in about $145,000 this year—50 percent higher than in 2022.
Differences exist across the state, however, as coastal areas are much more expensive than inland communities. Northern California has also experienced much slower home price growth than other parts of California.
Purchasing a two-bedroom home in California is now significantly more expensive—about $2,000 more per month, or about 71 percent higher—than renting a similar sized abode, analysts found. Rents have increased in the past four years by about 26 percent, but not nearly as fast as the cost to purchase.
The gap between monthly payments for owning a bottom-tier home versus renting is approaching record levels last experienced during the Golden State’s housing bubble in the mid-2000s before prices plummeted during and after the Great Recession in 2008.
But California’s housing struggles are not unique, according to experts.
A recent study by the Joint Center for Housing Studies of Harvard University, titled “The State of the Nation’s Housing 2024,” found that increasing housing costs are impacting homeowners and renters across the country.
Renters nationwide are struggling as rents climb and incomes fail to keep pace. Homebuyers are also impacted as home prices across the country set all-time highs in 2024.
Nationwide, 97 of the top 100 markets experienced home price growth, with higher spikes in the Northeast and Midwest, while the South and West saw more modest increases, according to the study.
As prices increase, property taxes—which are calculated based on home value or sale price, depending on state law—rise proportionally, which further burdens homeowners.
The number of homeowners paying more than 30 percent of household income on housing and utilities, a level economists regard as burdensome, is also on the rise, increasing nearly 20 percent between 2019 and 2022. Nearly 20 million people nationwide now classify as burdened, and more than 23 percent of homeowners are “stretched worryingly thin,” researchers wrote in the report.
Though a fraction of what California homeowners pay, the nationwide median home mortgage payment topped $2,200 monthly in 2024, up more than $850 since 2021. Those with low down payments are paying more than $3,000 per month.
Looking for solutions, the study found that more development is needed.
But development is hindered by higher construction costs, zoning rules and other regulations.
California rezoned land in 2023—including land owned by religious institutions and colleges—to allow for housing developments. Additionally, permitting processes are being simplified, with exemptions being granted for environmental reviews.
Also noted in the report is California’s leading stance on the construction of accessory dwelling units (ADUs), which allow homeowners to build structures, including small studio and one-bedroom units, on their land to expand the housing supply.
Low-income homeowners in California can apply for the state’s ADU Grant Program to request up to $40,000 to build accessory units.
The state is also looking at unused public school land to expand housing opportunities for staff and others.
One college graduate and small business owner in the Sacramento area said that while his parents and relatives are all homeowners, he’s skeptical that he’ll reach their ranks soon.
“With the price of everything, I’ll never be able to buy a home,” Luke Wang told The Epoch Times.
