Rise in mortgage rates dampen California’s housing affordability in fourth quarter 2022
Higher mortgage interest rates continue to place a strain on housing affordability in California. According to the California Association of Realtors Housing Affordability Index, 17% of California households could afford a medianpriced single-family home in fourth-quarter 2022, compared with 18% in third-quarter 2022 and 25% the same quarter a year ago.
California homebuyers needed a minimum annual income of $201,200 to qualify for the purchase of a $790,020 statewide median-priced, singlefamily home in the fourth quarter of 2022. Their monthly payment, including taxes and insurance on a 30-year fixed-rate loan would be $5,030, assuming a 20% down payment and an interest rate of 6.80%.
“The surge in mortgage rates, along with elevated home prices, continued to be the primary factors for the plunge in affordability. Compared to a year ago, more homebuyers are stretching their budgets in order to afford a home due to higher interest rates,” said Jim Hamilton, president of the Silicon Valley Association of Realtors.”the Fed is raising interest rates to stabilize the economy and housing market. In the past two years, home prices were rising too fast reaching unsustainable levels, which in turn contributed to rising inflation.”
According to Freddie Mac, the 30-year, fixed-mortgage interest rate averaged 6.27% in January 2023, up from 3.45% in January 2022.”Interest rates have come down since December, and we are seeing home prices soften. This could open opportunities for homebuyers,” said Hamilton.
In the nine-county
San Francisco Bay Area, affordability declined from the previous quarter in Solano and Sonoma, increased in Napa, and remained flat in
San Mateo, Santa Clara and four other counties. In San Mateo County, the housing affordability index remained at 19%, unchanged from third-quarter 2022 and fourth-quarter 2021. Homebuyers needed a minimum annual income of $458,400 to qualify for the purchase a $1,800,000 medianpriced single-family home. Their monthly payments, including taxes and insurance, would be $11,460.
In Santa Clara County, 20% of homebuyers could afford to purchase a median-priced home, unchanged from thirdquarter 2022 and down from 22% in fourthquarter 2021. Homebuyers
needed a minimum annual income of $401,600 to purchase a $1,577,500 medianpriced home to afford a monthly payment of $10,040.
San Mateo and Santa Clara counties were among four counties in the state that continued to require the highest minimum qualifying income of more than $400,000 to buy a median-priced home in fourth-quarter 2022. The other counties, also in the Bay Area, were Marin ($402,400) and San Francisco ($401,200).
“Let’s face it. In our region, more than higher interest rates, the driver that’s hurting housing affordability is the severe lack of housing. Inventory is so limited that would-be sellers can’t sell even if they want to because they can’t find a replacement home,” added Hamilton. “Unless we build more homes, housing affordability will always be a challenge in the Bay Area.”
For the state as a whole, Lassen (54%) remained the most affordable county in the fourth quarter of 2022, followed by Tehama (40%) and Shasta (39%). These three counties were also the only counties whose affordability index was higher than the national index of 38%. Of all counties in the state, Lassen also had the lowest minimum qualifying income ($59,200) to purchase a medianpriced home and was the only county in the state with a qualifying income less than $60,000.
Mono (7%) and Santa Barbara and San Luis Obispo at 11%, were the least affordable counties in California, with each requiring a minimum income of at least $210,000 to purchase a median-priced home in the respective counties.