The least affordable housing markets in the Bay Area, California

Homeownership in recent months grew even further out of reach financially for most people in the Bay Area and across California, a new report says.

Housing affordability declined in all nine Bay Area counties in the second quarter of 2022, according to the report from the California Association of Realtors. Statewide, it dipped to its lowest level in nearly 15 years.

The CAR’s housing affordability index calculates the percentage of households that can afford to purchase a median-priced, single-family home in California.

By that measure, in the Bay Area, only 18% of home buyers could afford to purchase the $1.495 million median-priced home in the period from April to June. That price would require a minimum qualifying annual income of $337,200 to make a monthly payment of $8,430, which includes taxes and insurance on a 30-year, fixed-rate loan with a 20% down payment.

“Housing affordability continued to slide in California in the second quarter primarily because of rising interest rates and home prices remaining elevated,” wrote Oscar Wei, deputy chief economist for the Realtors association, in an email. “In anticipation of the Fed’s aggressive rate hikes in the second quarter, the market had pushed the average 30 year fixed-rate-mortgage to the highest level in over 13 years in late June.”

The statewide median home price also set a back-to-back record high in April and May before slightly declining in June, Wei added.

In the Bay Area, Alameda, Napa and San Mateo counties were in a three-way tie for the lowest housing affordability rate, with only 15% of households able to purchase a median-priced single-family home. In San Mateo County, a person would need a minimum income of $512,000 to afford the median $2.27 million home price, which is the highest among all Bay Area counties.

Affordability declined in almost all counties in California, so it was not a surprise that all Bay Area counties’ index figures dipped from the prior quarter.

“The dip in affordability is a reflection of the higher cost of borrowing, but it also suggests a tight constraint in housing supply in the area,” said Wei. “Even if rates were to come down eventually, we still need to build more in order to alleviate the upward pressure on home prices.”

Low housing affordability in the Bay Area, especially in Alameda, Napa and San Mateo counties, will eventually result in lower homeownership rates and could lead to increased out-migration if the housing supply constraint continues, Wei said.

Solano County is the most affordable, requiring a $140,800 annual household income for a median-priced $625,000 single-family home. But the 28% affordability rate in the second quarter of 2022 was down from 37% in the prior quarter and from 40% in the second quarter of 2021.

Statewide, only 16% of home buyers could afford to purchase a median-priced, single-family home in the second quarter, down from 24% in the prior quarter and 23% in the second quarter of 2021. That means a minimum annual income of $199,200 is needed to qualify for a purchase of the $883,370 median-priced, single-family home, with a monthly payment of $4.980.

The California county with the lowest affordability rate was Mono County at just 6%. Other counties with very low affordability are Santa Barbara at 10%, Orange and San Luis Obispo at 12%, and Santa Cruz and Monterey, both at 13%. The county highest on the affordability index is Lassen at 54%. Other more affordable counties are Kings at 39%, Shasta and Glenn at 36%, and Merced and Tulare at 34%.

Even though interest rates have declined modestly in recent weeks, with the 30-year fixed rate currently at 5.22%, Wei said “inflationary pressure will not go away in the next few months and will continue to put upward pressure on rates.”

“Home prices will remain elevated in the second half of the year, despite softer price growth for the rest of the year,” he added. “As such, housing affordability will remain around the same level, or may even dip in the next couple quarters as rates start rising again.”

This puts even more pressure on potential home buyers, Wei said.

“For home buyers, the decline in affordability means fewer of them are able to buy a median-priced home as compared to the previous quarter and a year ago,” he said. “It could mean that there will be more buyers competing in the lower price segment. And it also means buyers will need to come up with a bigger down payment if they want to buy the same median-priced home in the second quarter.”

In the US, affordability has also declined, the report said: 38% of home buyers could afford the $413,500 median-priced home in the second quarter of 2022, down from 47% in the first quarter and from 49% in the second quarter a year ago. The minimum qualifying income is $93,200 with a monthly payment of $2,330.

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