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Like many other states, California has seen its median home price surge over the course of the pandemic, climbing 34 percent annually in the second quarter of 2021. Unlike many other states, however, home prices were sky-high to begin with, which has led to rapidly deteriorating housing affordability.

During the second quarter of this year, only 23 percent of California households could afford to purchase the $817,950 median-priced single-family home, according to the California Association of Realtors’ Traditional Housing Affordability Index (HAI). That’s down from 27 percent of households in the first quarter of 2021 and 33 percent from the same period last year. 

Compared to the index’s high point of 56 percent, recorded during the second quarter of 2012 in the wake of the 2008 housing crash, affordability has declined by more than half. CAR attributes worsening affordability in second-quarter 2021 to “a highly competitive market fueled by low interest rates and a tight supply of homes for sale.”

Assuming a 30-year fixed-rate mortgage at a 3.20 percent interest rate, a household would need to earn at least $150,800 per year to cover the monthly mortgage payment (including principal, interest and taxes). Although the effective composite interest rate has fallen since the second quarter of 2020, home prices have climbed much more quickly. 

In contrast to the previous quarter, buying power decreased in 47 of the counties tracked by CAR, increased in three counties (Monterey, Glenn and Mono), and held steady in one county (Lassen). With the exception of San Francisco, which remained unchanged, every county in the state experienced worsening housing affordability. 

For many prospective buyers in California’s largest metropolitan areas, the dream of homeownership has drifted even farther out of reach. Twenty-four percent of Los Angeles Metro Area residents could afford the median-priced single-family home in the second quarter of 2021, compared to 36 percent during the same period last year. 

In the comparatively affordable Inland Empire, the number of qualified households sank from 46 percent to 36 percent. The San Francisco Bay Area, one of the priciest housing markets nationwide, saw its index drop from 28 percent in second-quarter 2020 to just 19 percent in second-quarter 2021.

The affordability outlook was a bit brighter for the condominium and townhouse segment. Thirty-seven percent of California households could afford to purchase the $585,000 median-priced unit. An annual income of $108,000 was needed to cover the $2,700 monthly mortgage payment. 

Priced out of the single-family home market, many Californians have turned to condos and townhouses as relatively affordable alternatives. This shift in buyer preferences caused the index for multi-family housing to decline from 44 percent in the second quarter of 2020 to 37 percent in the second quarter of 2021. While single-family home sales have cooled slightly across the state, condo and townhouse sales remain robust.

Underscoring just how dire California’s housing affordability crisis has become, the report also noted that half of Americans could afford the country’s $357,900 median-priced home with an annual income of $66,000. That being said, nationwide affordability has fallen from 57 percent a year ago.

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