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California Housing Affordability Report for Q1 2025

As 2025 begins, a noteworthy shift in California's housing market is observed. The California Association of REALTORS® (C.A.R.) announced that in the first quarter of this year, 17% of households statewide could afford to buy a home priced at the median of $846,830. This marks a slight uptick from 15% in the previous fourth quarter of 2024. Interestingly, this figure remains unchanged from the same quarter last year, suggesting a nuanced state of affordability within the historical context of the California housing market.

To qualify for buying this median-priced home, potential buyers must show an annual income of at least $218,000. This income benchmark allows monthly payments totalling $5,450, which incorporates principal, interest, taxes, and insurance on a fixed-rate 30-year mortgage with an interest rate of 6.93%.

Moreover, the report highlighted that 24% of home buyers were able to secure a condo or townhome, which had a median price of $670,000 requiring a minimum annual income of $172,400 to manage a monthly payment of $4,310.

The Current Landscape

C.A.R. attributes the modest growth in housing affordability to a slowdown in home price increases overshadowed by rising mortgage rates. Over the last quarter, mortgage rates have surged to their highest levels in three quarters, maintaining borrowing costs near historical peaks. Despite this, the required monthly mortgage payment for the median home slightly decreased by 1.8% from the last quarter but has risen 4.6% compared to the same time last year.

From a broader perspective, this affordability index remains significantly below its peak of 56% in 2012, reflecting the ongoing challenges that many homebuyers face in the state even with slight improvements taken into account. C.A.R.'s Traditional Housing Affordability Index calculates the share of households in California capable of purchasing a median-priced single-family home, providing essential insights into market health.

C.A.R. also mentioned the variability in affordability across its counties. While 15 counties saw affordability decline compared to the previous quarter, 26 counties reported some level of improvement citing slower price growth and enhanced incomes, despite the prevailing challenge of increased mortgage rates. Annually, 26 counties showed improved affordability, while others faced declines.

Regional Analysis

Examining the regional affordability reveals striking contrasts. Lassen County stood out, with 56% of households being able to purchase a median-priced home, needing the lowest qualifying income of just $60,400. In stark contrast, Mono County reported only 5% affordability, with buyers needing a staggering income of $325,200 to purchase a median home priced at $1,263,650.

The landscape in San Mateo County, often regarded as one of California’s most expensive, reflects harsh realities where only 16% of households could afford to buy a median home with a required income of $561,600.

Looking Ahead

As we move deeper into the home-buying season, market watchers are keenly observing how various external factors, including economic uncertainties and diverse trade policies, could impact both mortgage rates and home prices in the coming months. While the easing of price growth might provide some relief to potential buyers, sustained high mortgage rates are likely to continue challenging many in their quest for home ownership.

In conclusion, California's housing affordability landscape in early 2025 presents a mixed picture, with slight improvements, notable local variations, and the overarching shadow of high mortgage rates and home prices still looming large. Buyers remain hopeful, yet the path to homeownership continues to be fraught with complexities as affordability remains a critical issue for many households in the Golden State.