California housing affordability slides to lowest level in nearly 16 years during second-quarter 2023, C.A.R. reports

Aug 11, 2023 – Housing affordability in California hit a 16-year low in Q2 2023. Only 16% of households could afford the median-priced home of $830,620. This requires an annual income of $208,000 for monthly payments of $5,200 at a 6.61% interest rate.

• Sixteen percent of California households could afford to purchase the $830,620 median-priced home in the second quarter of 2023, down from 19 percent in the first quarter of 2023 and down from 17 percent in the second quarter of 2022.
• Homebuyers needed a minimum annual income of $208,000 to make monthly payments of $5,200, including principal, interest, and taxes on a 30-year fixed-rate mortgage at a 6.61 percent interest rate.
• Twenty-five percent of home buyers could purchase the $640,000 median-priced condo or townhome. A minimum annual income of $160,400 was required to make a monthly payment of $4,010.

Housing affordability in California slid to the lowest level in nearly 16 years as interest rates stayed above 6 percent for the third straight quarter and home prices remained elevated by a shortage of homes on the market, the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) reported.

Fewer than one in five (16 percent) home buyers could afford to purchase a median-priced, existing single-family home in California in the second-quarter 2023, down from 19 percent in the first quarter of 2023 and down from 17 percent in the second quarter of 2022, according to C.A.R.’s Traditional Housing Affordability Index (HAI). The second-quarter 2023 figure is less than a third of the affordability index peak of 56 percent in the first quarter of 2012.

C.A.R.’s HAI measures the percentage of all households that can afford 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 $208,000 was needed to qualify for a $830,620 statewide median-priced, existing single-family home in the second quarter of 2023. The monthly payment, including taxes and insurance (PITI) on a 30-year, fixed-rate loan, would be $5,200, assuming a 20 percent down payment and an effective composite interest rate of 6.61 percent.

The effective composite interest rate was 6.48 percent in the first quarter of 2023 and 5.39 percent in the second quarter of 2022. With interest rates near a 17-year high and expected to remain elevated for the rest of the year, housing affordability will remain challenging for many home buyers in the coming months.

The median price of condominiums and townhomes in California declined from a year ago but was up from the previous quarter. As a result, the share of households that could afford a typical condo/townhome in the second quarter of 2023 dipped from the 26 percent recorded in the previous quarter but was unchanged from the 25 percent recorded in the second quarter of 2022. An annual income of $160,400 was required to make the monthly payment of $4,010 on the $640,000 median-priced condo/townhome in the second quarter of 2023.

Compared with California, more than a third of the nation’s households could afford to purchase a $402,600 median-priced home, which required a minimum annual income of $100,800 to make monthly payments of $2,520. Nationwide affordability was down from 38 percent a year ago.

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

• Compared to the previous quarter, housing affordability declined in 47 counties and remained unchanged in four. Unfortunately, not one single county recorded a quarter-to-quarter improvement in affordability. That said, affordability improved from a year ago in 15 counties, while affordability in eight others remained unchanged. However, on a year-over-year basis, affordability declined in most counties (28).
• Lassen (52 percent) remained the most affordable county in the state and was the only county to record an affordability index of more than 50 percent in the second quarter of 2023. Siskiyou (39 percent), Plumas (38 percent), and Shasta & Tehama (both at 35 percent) followed closely. Together, they were the only five counties to record an affordability index of at least 35 percent, with all five being located in the Far North region. Lassen required the lowest minimum qualifying income ($62,400) of all counties in California to purchase a median-priced home and was the only county in the state with a qualifying income of less than $65,000.
• The least affordable counties in California were Mono (5 percent), Santa Barbara (10 percent), San Luis Obispo (11 percent), and Monterey, along with Orange County (both at 12 percent). Each of those counties required a minimum income of at least $216,800 to purchase a median-priced home in that county. San Mateo continued to require the highest minimum qualifying income ($504,400) to buy a median-priced home in the second quarter of 2023 and was the only county with a minimum qualifying income of over $500,000. Santa Clara County required the second-highest minimum income of $451,200, followed by Marin ($443,600) and San Francisco ($403,600).
• Housing affordability declined the most year-over-year in Kings County, falling seven points in the second quarter of 2023. Lake recorded the second most significant drop in affordability, sliding five points below the like quarter of last year, followed closely by Amador and Glenn, with each dropping four points from a year ago. Despite higher household incomes and somewhat lower home prices, elevated mortgage rates continued to be the primary factor keeping the cost of borrowing near all-time highs and affordability in a persistent crunch in most of these counties.