Despite high mortgage rates, more California households were able to afford a home in the first quarter of 2025, thanks to decelerating home price growth. According to C.A.R., 17% of Californians could afford a median-priced, single-family home, up from 15% in Q4 2024 and flat compared to Q1 2024. Affordability, however, remains near historic lows — far below the 56% peak in Q1 2012.
Mortgage Rates Stay Elevated, But Payments Dip Slightly
- The effective composite interest rate rose to 6.93%, up from 6.76% in Q4 2024 and 6.86% in Q1 2024.
- Mortgage payments for a median-priced home decreased 1.8% quarter-over-quarter but increased 4.6% year-over-year.
- The monthly PITI payment for a median-priced ($846,830) home was $5,450, requiring a minimum annual income of $218,000.
Mortgage rates peaked above 7% in January 2025, then began to moderate. However, ongoing economic uncertainty and federal trade policy developments have caused recent market volatility. The Federal Reserve held interest rates steady at their recent meeting and indicated they will monitor economic impacts going forward.
Home Prices Dip Quarterly But Still Up Annually
- Median home prices fell 3.1% from Q4 2024, driven by seasonal factors and a shift in sales mix.
- Annual price growth slowed to 4.0%, down from 4.9% in Q4 2024, but marked the seventh consecutive quarter of year-over-year increases.
Looking ahead, competition is expected to increase during the spring buying season, which may support continued price growth. Still, increased active listings compared to the last two years could temper market overheating and ease pressure on buyers.
Condo/Townhome Affordability Remains Stable
- 24% of households could afford a $670,000 median-priced condo/townhome, unchanged from both Q4 2024 and Q1 2024.
- Buyers needed an income of $172,400 for a $4,310 monthly payment.
National vs. California Affordability
- 37% of U.S. households could afford a $402,300 median-priced home, requiring a $103,600 annual income and $2,590 monthly payment.
- This is more than double California's affordability rate and marks the eighth consecutive quarter where the national required income was less than half of California’s.
County-Level Affordability Highlights
- Improved affordability in 26 counties quarter-over-quarter, with declines in 15 and no change in 12.
- Year-over-year, 26 counties improved, 20 declined, and 7 were unchanged.
Most Affordable Counties
- Lassen: 56% affordability; lowest required income at $60,400.
- Glenn and Tuolumne: 40% affordability.
Least Affordable Counties
- Mono: 5% affordability.
- Santa Barbara: 9%, Monterey: 10%.
- San Mateo: Highest required income at $561,600 (16% affordability).
- Santa Clara (18%) and Marin (20%) also had exceptionally high income thresholds.
Largest Yearly Affordability Declines
- Tehama: down 6 points to 33%.
- Imperial: down 5 points to 25%.
- Shasta: down 5 points to 32%.
Outlook
While affordability showed modest improvement in early 2025, elevated mortgage rates and high home prices continue to restrict broader gains. Slower price growth and increased inventory offer some relief, but affordability remains a significant barrier for many California homebuyers.
