“How expensive?” tracks measurements of California’s totally unaffordable housing market.
The pain: A Southern California house hunter needed a $73,000 pay bump in the past two years to remain qualified to buy a median-priced home, pinching affordability to levels not seen since before the Great Recession.
The source: My trusty spreadsheet reviewed the California Association of Realtors’ year-end affordability indexes, which combine pricing, incomes, and mortgage rates to track the financial challenge of acquiring a residence. We then looked at what’s changed in two years of the Federal Reserve’s rate-hiking campaign.
The pinch
A theoretical Southern California homebuyer in 2023’s final quarter required an income of $207,000 vs. just $134,000 two years earlier. Yes, a 55% pay hike was necessary just to stay in the game.
Why? For starters, the median-priced, existing single-family house was $775,000 at year-end 2023, up 7% since the end of 2021.
And most importantly, the average mortgage rate went to 7.4% from 3.3% Remember those cheap money days?
So, a typical buyer’s estimated house payment went to $5,180 a month from $3,350 in two years. That’s a $1,830 pop.
Rising prices pinched the Realtors’ affordability rate, which told us that just 14% of the region’s households could qualify to buy at year’s end.
This affordability measurement puts no more than 30% of your income into the mortgage, property taxes, and insurance. Oh, did we mention also having $155,000 for the 20% down payment?
Sadly, local affordability is down from 26% at year-end 2021 – and the last time it was this hard to buy was during the great market bubble of 2006-07.
Pressure points
At least the local purchasing pain is better than the statewide hurdle: For California overall, a buyer needed $223,000 to qualify (up $75,000 in two years) on a $833,000 home (up 4% since 2021). Affordability ran 15% vs. 25% at 2021’s end.
And you can blame the ugly California numbers largely on the Bay Area’s $329,000 income requirement, which is up $97,000 since 2021. That buys a $1.23 million home, off 2% since 2021.
But thanks to NorCal’s sky-high tech salaries, Bay Area affordability is better than Southern California or the state, running 19% vs. 23% at 2021’s end.
- HOW NIMBY ARE YOU? Ponder common objections to new housing. TAKE OUR QUIZ!
Look at the growing house-hunting financial stress across Southern California, ranked by the size of the pay hikes needed to qualify to buy a house …
Orange: Up $134,000 in two years to $348,000 to qualify in the fourth quarter to qualify for a $1.3 million home (up 13% since 2021). Affordability? 11% year-end vs. 17% in 2021.
San Diego: Up $92,000 to $249,000 to qualify for a $932,000 home (up 10%). Affordability? 11% vs. 23% in 2021.
Los Angeles: Up $88,000 to $236,000 to qualify for a $884,000 home (up 11%). Affordability? 11% vs. 21% in 2021.
Ventura: Up $83,000 to $241,000 to qualify for a $900,000 home (up 6%). Affordability? 13% vs. 24% in 2021.
Riverside: Up $57,000 to $166,000 to qualify for a $619,000 home (up 6%). Affordability? 19% vs. 32% in 2021.
San Bernardino: Up $47,000 to $131,000 to qualify for a $489,000 home (up 9%). Affordability? 24% vs. 42% in 2021.
Bottom line
The odds are dismal for becoming a Southern California homeowner. Can you see why local home sales have been at historical lows the past two years?
The good news is that mortgage rates have dipped recently to around 6.7%. That would cut Southern California’s homebuying income requirement by roughly $15,000 — not a trend-bending amount.
Also, think about the competition elsewhere in the nation.
The typical American needed only $105,000 to qualify in the fourth quarter – up $38,000 since 2021 – to buy the $392,000 median-priced U.S. home that became 8% costlier over 12 months.
So according to Realtor math, 35% of Americans theoretically can buy, down from 50% at 2021’s end.
That’s more than double the “affordability” rate in Southern California.
Jonathan Lansner is the business columnist for the Southern California News Group. He can be reached at jlansner@scng.com
