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California's Housing Affordability in the Second Quarter of 2025

According to the recently released report by the California Association of Realtors (C.A.R.), housing affordability in California took a slight dip during the second quarter of 2025. The data indicates that only 15% of households in the state were able to afford the median-priced home, gauged at $905,680. This percentage represents a decrease from 17% recorded during the first quarter of 2025, although it reflects an increase from 14% the same time last year.

To afford the median-priced single-family home, a minimum annual income of $232,400 was necessary. Buyers would need to manage substantial monthly payments totaling $5,810, which includes principal, interest, taxes, and insurance, assuming a 30-year fixed-rate mortgage at an interest rate of 6.90%. The report illustrates the ongoing challenges within the housing market amid rising interest rates combined with high home prices, making homeownership increasingly elusive for many.

Additionally, the report highlights that affordability for condominiums and townhomes did show some resilience. Approximately 25% of homebuyers could afford a median-priced condo, which was priced at $670,000, requiring an annual income of $172,000 to cover monthly payments of about $4,300.

This ongoing struggle for affordability is still considerably impacted by fluctuating interest rates and economic uncertainty. In the first half of 2025, average effective mortgage rates saw a decline to 6.90% from 6.93% in the prior quarter, and down from 7.10% reported a year earlier. Despite these slight declines, rates continue to remain markedly high, representing some of the highest borrowing costs seen historically.

Throughout the second quarter of 2025, month-over-month, the statewide median price for homes jumped by 6.9% due to seasonal factors, yet experienced its first annual price drop in eight quarters. This decrease is attributed to dwindling buyer demand matched with improved housing supply, which has initiated softer home prices.

Yearly Improvements and Future Projections

Although housing affordability has dwindled from the previous quarter, it's vital to recognize the annual improvements showcased in the data. Year-over-year, numerous counties in California have experienced enhanced affordability, with 41 counties indicating improvement compared to just 12 that reported no change or a decline. Lassen County emerged as the most affordable area, with 46% of households able to purchase a median-priced home and requiring the lowest minimum qualifying income of $73,200.

Conversely, counties like Mono, Monterey, and Santa Barbara recorded some of the worst affordability figures, with only 8% to 10% of households capable of affording homes priced at about $906,000 and above. Additionally, regions such as San Mateo and Santa Clara required annual incomes exceeding $500,000, reinforcing the stark contrasts across California’s various housing markets.

Concluding Thoughts

In the months ahead, experts anticipate that housing prices may start to cool as the home-buying season winds down, possibly leading to improved affordability metrics. However, the national landscape differs significantly, as over 34% of households outside California could afford a median-priced home costing $429,400, with a needed income of only $110,400. This stark difference underlines not only California's unique housing market challenges but also its vast economic variations.

In conclusion, while many regions in California have witnessed a gradual improvement in housing affordability when compared to last year, persistent high costs and interest rates pose ongoing barriers for prospective buyers. It remains to be seen how exactly these factors will shape California's real estate landscape in the latter half of 2025.