Record high home prices, high interest rates cause California housing affordability to shrink

The housing affordability outlook for Californians weakened in the first quarter of 2022, as the statewide median home price set a new high and interest rates reached their highest levels in more than two years, according to the California Association of Realtors. The Federal Reserve’s recent move to raise rates by half a percentage point in order to fight inflation is expected to further diminish housing affordability for many Californians.

According to C.A.R.’S Traditional Housing Affordability Index, the percentage of homebuyers who could afford to purchase a median-priced single-family home in California in first-quarter 2022 ticked down to 24% from 25% in the fourth quarter of 2021 and down from 27 percent in the

first quarter of 2021. The first-quarter 2022 figure is less than half of the affordability index peak

of 56% in the first quarter of 2012.

A minimum annual income of $158,000 was needed to qualify for the purchase of a $797,000 statewide median-priced single-family home in the first quarter of 2022. The monthly payment, including taxes and insurance on a 30-year fixed-rate loan, would be $3,950, assuming a 20% down payment and an interest rate of 3.97%. The interest rate was 3.28% in fourth-quarter 2021 and 3.08% in first-quarter 2021.

In the nine-county San Francisco Bay Area, affordability declined from the previous quarter in all counties. Alameda County was the least affordable Bay Area county, at just 17% of households able to purchase the $1,370,500 median-priced home. Thirty-seven percent of

Solano County households could afford the

$600,000 median-priced home, making it the most affordable Bay Area county.

In San Mateo County, 18% of households could afford to purchase a $2,195,000 medianpriced home in the first quarter of 2022, down from 19% in fourthquarter 2021 and in first-quarter 2021. They would need a minimum annual income of $435,200. The monthly payment on a 30-year fixed-rate loan would be $10,880, assuming a 20 percent down payment and an interest rate of 3.97%.

In Santa Clara County, 20% of households could afford to purchase a $1,875,000 medianpriced home in the first quarter of 2022, down from 22% in fourthquarter and in firstquarter 2021. They would need a minimum annual income of $371,600. Their monthly payment on a 30-year fixed-rate loan would be $9,290.

“The Silicon Valley housing markets of San Mateo and Santa Clara counties remain strong, but the recent interest rate move, which is the largest since 2000, is concerning. We will likely see fewer multiple offers as some buyers may

decide to move to the sidelines and it will only exacerbate the homeownership disparities among Whites, Asian, Black and Latino households,” said Brett Caviness, president of the Silicon Valley Association of Realtors.

Mono (7 percent), Santa Barbara (12 percent), Santa Cruz (13 percent) and Orange (13 percent) were the least affordable counties in the state, requiring at least a minimum income of $205,600 to

purchase a median-priced home. Meanwhile, Lassen (61 percent) remained the most affordable county, followed by Kings (51 percent), Shasta (42 percent) and Siskiyou (42 percent). Lassen required the lowest minimum qualifying income ($48,400) of all counties in California to purchase a median-priced home.