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July 12, 2024
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Home Affordability in California Drops to Lowest Level in 10 Years


Record home price increases and higher interest rates combined to constrain California housing affordability to the lowest levels in 10 years, according to the lates research from the California Association of Realtors® (C.A.R.).

The percentage of home buyers who could afford to purchase a median-priced, existing single-family home in California in second-quarter 2018 fell to 26% from 31% in the first quarter of 2018 and was down from 29% in the second quarter a year ago, according to C.A.R.’s Traditional Housing Affordability Index (HAI). This is the 21st consecutive quarter that the index has been below 40%. California’s housing affordability index hit a peak of 56% in the second 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 $126,490 was needed to qualify for the purchase of a $596,730 statewide median-priced, existing single-family home in the second quarter of 2018. The monthly payment, including taxes and insurance on a 30-year, fixed-rate loan, would be $3,160, assuming a 20% down payment and an effective composite interest rate of 4.70%. The effective composite interest rate in first-quarter 2018 was 4.44% and 4.09% in the second quarter of 2017.

While low housing affordability may be typical in many Bay Area counties, more traditionally affordable areas were at 10-year lows in the second quarter. Those that reached the decade-low include Alameda, Merced, Orange, Riverside, Sacramento, San Bernardino, San Diego, San Mateo, Santa Clara, Santa Cruz, and Sonoma.

Housing affordability for condominiums and townhomes also fell in second-quarter 2018 compared to the previous quarter with 36% of California households earning the minimum income to qualify for the purchase of a $477,790 median-priced condominium/townhome, down from 39% in the first quarter. An annual income of $101,270 was required to make monthly payments of $2,530.

Key points from the second-quarter 2018 Housing Affordability report include:

• Housing affordability improved from second-quarter 2017 in 8 tracked counties and declined in 37 counties. Affordability in four counties remained flat.
• In the San Francisco Bay Area, affordability improved from a year ago in San Francisco and Marin counties, primarily due to higher wages. Affordability fell in five counties (Alameda, Contra Costa, Santa Clara, Solano, and Sonoma). Affordability held steady in Napa and San Mateo counties.
• In Southern California, affordability improved only in Ventura, and dropped in five counties (Los Angeles, Orange, Riverside, San Bernardino, and San Diego) compared to a year ago.
• In the Central Valley, only Madera County saw an improvement in affordability from second-quarter 2017. Housing affordability decreased from a year ago in nine counties (Kern, Kings, Merced, Placer, Sacramento, San Benito, San Joaquin, Stanislaus and Tulare). Affordability held steady only in Fresno County.
• In the Central Coast region, only Santa Barbara experienced a year-to-year improvement in affordability, while three counties (Monterey, San Luis Obispo, and Santa Cruz) posted a decline.
• During the second quarter of 2018, the most affordable counties in California were Lassen (64%), Kern (53%), Madera (52%), Tehama (51%) and Kings (50%).
• Santa Cruz (12%), San Francisco, San Mateo, and Mono (all at 14%), and Alameda and Santa Clara (both at 16%) counties were the least affordable areas in the state.

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