California's housing market continues to suffer from affordability challenges after experiencing an upturn of mortgage rates and elevated home prices which drove borrowing costs near all-time highs in the fourth quarter of 2024, according to the California Association of Realtors (C.A.R.).
C.A.R.'s Traditional Housing Affordability Index (HAI) finds that only 15% of the state’s homebuyers could afford to purchase a median-priced, existing single-family home at $874,290, compared to 16% in the previous quarter. However, the percentage remains the same compared to the fourth quarter of 2023.
A minimum annual income of $222,000 was needed to qualify for a statewide median-priced, existing single-family home in the fourth quarter of 2024. California reached its peak affordability level more than a decade ago.
In the fourth quarter of 2012, data show, 56% of households could afford to purchase a median-priced single-family in the state, whereas today only a quarter of that percentage could afford to do so. The HAI is considered the most fundamental measure of housing well-being for homebuyers in the state.
Mortgage rates began to trend upwards in October and continued to stay elevated at the start of 2025. However, C.A.R. anticipates rates to fluctuate over the next two quarters due to policies enacted by the White House administration.
Also, the Federal Reserve announced in January that they will pause any changes on cutting rates as it evaluates the market in the upcoming months, leading experts to believe rates will remain high.
The monthly payment, including taxes and insurance (PITI) for a 30-year fixed-rate loan is $5,550, assuming a 20% down payment and effective composite interest rate of 6.76%. In the third quarter, the interest rate was 6.63% and in the fourth quarter of the previous year it was 39%.
The monthly PITI for a typical single-family home in California inched up from the previous quarter but stayed below the same quarter of last year.
Seasonal factors and a slight dip in the mix of sales affected the price of existing single-family homes which edged down 0.7% quarter-to-quarter. California homes continued to record year-over-year price increases for the last six consecutive quarters, which has accelerated price growth to 4.9% in the fourth quarter from 4.3% in the third quarter.
During the housing market’s offseason — typically the first quarter of every year — home prices are expected to soften as inventory levels rise and competition cools down. Moderate price growth should ease the affordability crunch prospective buyers are facing, though elevated mortgage rates will remain a challenge over the next several quarters.
The share of California households that could afford a typical condo or townhouse in the fourth quarter of 2024 dipped to 24%, down from 25% recorded in the previous quarter and up from 22% a year ago. An annual income of $170,000 was needed to make the monthly payment of $4,250 on the $670,000 median-priced condo or townhouse in the fourth quarter.
Prospective buyers in California have a tougher time finding homes within their budgets compared to the rest of the nation. More than a third (36%) of the nation’s households could afford to purchase a $410,100 median-priced home which required a minimum annual income of $104,000 to make monthly payments of $2,600.
Affordability improved nationwide by 1 percentage point (35%) compared to the previous year, however. The annual income needed to purchase the nationwide median-priced home was less than half of California’s for the seventh consecutive quarter.
Disaster Relief For Southern California Households
Thanks to a $1 million donation by the Realtors Relief Foundation, C.A.R. is awarding $1,000 disaster relief grants to homeowners and renters affected by the Southern California wildfires in January 2025.
Those who were affected by the Hurst, Eaton, Palisades, or subsequent wildfires, are encouraged to apply for assistance for mortgage relief, rental payments, or temporary housing, such as hotel stays due to displacement from their primary residence.
"With so many homes and businesses lost and a housing crisis that existed long before the fires, Realtors recognize the importance of reaching out and helping their communities to recover and rebuild," said C.A.R. President Heather Ozur. "As residents begin the long process of starting over, the Realtor community is glad to be able to provide some immediate support in their time of need. We encourage impacted families to apply today and take the first step toward recovery," said Ozur.
Relief assistance is limited to a maximum of $1,000 per applicant household. Applications are open from February 10 - April 30, 2025, contingent on the availability of funds.
Second mortgages (home equity loans), clothing, appliances, equipment, vehicle costs, or other non-housing-related expenses are ineligible for reimbursement under this program.
