California Housing Affordability Continues to Decline as Interest Rates Rise and Inventory Shrinks

The dream of owning a home in California is slipping further out of reach for many as interest rates climb and inventory remains scarce, according to a recent report from the California Association of Realtors.

In the second quarter, only 16% of households could qualify to purchase a median-priced single-family home in the state. This is down from 19% in the first quarter and 17% from a year earlier, highlighting the growing affordability crisis in California.

The high cost of housing in California has already led to people and companies leaving the state or choosing not to move there. This trend could potentially hinder economic growth and population expansion in the future if nothing is done to address the issue.

Oscar Wei, deputy chief economist for the state Realtors group, warned that if the supply of housing is not increased, California’s competitiveness could be impacted in the long run.

In comparison to the national average, where more than a third of households could afford a median-priced home, California’s housing market remains significantly more expensive. With a median price of $830,620 for a single-family home, buyers in the state needed a minimum annual income of $208,000 to qualify for a mortgage after a 20% down payment.

Despite a 2.4% decrease in single-family home prices statewide, buyers’ monthly costs have increased due to rising mortgage rates, which are hovering close to 7%. Additionally, the limited inventory of homes for sale is further exacerbating the issue, as owners with lower-rate loans are choosing to stay put rather than sell.

The number of new listings in June fell by 29% compared to the previous year, indicating a continued shortage of available homes on the market. This situation is reminiscent of the housing price bubble in 2007 when statewide affordability rates hit an all-time low of 11%.

As California grapples with these challenges, potential homebuyers are facing an uphill battle in their quest to achieve homeownership in the Golden State.