The San Francisco Bay area real estate market became a bit more affordable in 2023,…
Report: Affordability Is Rising for California Home Buyers in 2023
A new report from the California Association of Realtors (C.A.R.) found that housing affordability in California rose to its highest level in a year during the first quarter of 2023. That’s good news for home buyers across the state, especially those located in the more expensive real estate markets like the San Francisco Bay Area.
California Housing Market More Affordable in 2023
Specifically, the C.A.R. report found that 20% of California households could afford to purchase a median-priced ($760,260) home during the first quarter of this year. That was up from 17% in the fourth quarter of 2022, but down from 24% in the first quarter of 2022.
Translation: housing market affordability in California has improved in recent months, but still falls short when compared to a year ago.
The report attributed the improvement in affordability to a combination of factors, including:
- Lower prices. Home prices across California declined by 1.7% from the fourth quarter of 2022 to the first quarter of 2023.
- Lower rates. The cost of borrowing also dipped, with the average interest rate on a 30-year fixed-rate mortgage falling to 6.48% (when the report was published).
Lassen County remained the most affordable county in California, with an affordability index of 53%. Plumas and Siskiyou counties were also among the most affordable counties in the state, with affordability indexes of 42% and 41%, respectively.
A ‘Typical’ Buyer Needs an Income North of $188,000
To purchase a median-priced home in the state of California, the typical home buyer would need a minimum annual income of $188,400. With current mortgage rates, that would result in a monthly payment of around $4,710 on a 30-year fixed-rate loan (including interest, and taxes).
Housing market affordability in California tends to be even higher for condominiums and townhomes. And that was the case with this latest C.A.R. report.
During the first quarter of this year, 26% of buyers could afford to purchase a median-priced townhome or condo unit (valued at $619,900). Borrowers would need a minimum annual income of $153,600 to afford the average monthly mortgage payment of $3,840.
Affordability Could Increase Further During 2023
Based on this report, the housing market in California became more affordable for home buyers during the first part of 2023. And this trend could continue over the coming months, if prices continue to decline. And that’s the most likely scenario, according to the state’s Realtor association.
C.A.R. researchers recently revised their “2023 Housing Market Forecast,” projecting an 18.2% decline in existing single-family home sales during the current year.
They also expect a modest decrease in prices, which would further improve housing market affordability in California. The median home price in California is predicted to decrease by 5.6% to $776,600 in 2023, down from the $822,300 recorded in 2022.
If mortgage rates also decline over the coming months, as some have predicted, it could make housing even more affordable for home buyers across the state. But we are wandering into the weeds of speculation here.
The bottom line is that housing market affordability in California is higher now than at the end of last year. This is due to a combination of factors, including lower prices and interest rates. And it’s a trend that could continue through the rest of 2023, to the benefit of home buyers.
Eight Things Home Buyers Can Do
Finding an affordable home in California can often seem like an insurmountable challenge. But there are proactive steps prospective home buyers can take to improve their chances of affording a home in the Golden State. Here are seven such strategies worth considering.
1. Start saving now.
You will likely encounter upfront costs when buying a home in California. These can include the down payment, closing costs, and moving expenses. The sooner you start saving up for these expenses, the better. Having enough money in the bank can also help you qualify for a mortgage loan, which can further increase affordability.
2. Try to improve your credit score.
A higher credit score can lead to better mortgage options and lower interest rates. Pay bills on time and look for ways to reduce your existing debts. These steps could improve your creditworthiness and help you qualify for a lower mortgage rate.
3. Explore loan programs.
Research different loan programs available in California, such as Federal Housing Administration (FHA) loans or Veterans Affairs (VA) loans, which may have more flexible requirements and lower down payment options.
4. Expand your search zone.
Consider exploring areas outside of major metropolitan areas where real estate prices may be more affordable. Commuting or relocating to nearby cities or suburbs could provide more affordable housing options.
5. Work with an agent.
Seek out a knowledgeable real estate agent who specializes in the local market. They can help you identify properties within your budget, negotiate prices, and guide you through the home buying process.
6. Explore co-ownership.
Consider teaming up with family members or friends to purchase a property together. Co-buying or co-ownership arrangements can help share the financial burden and make homeownership more affordable.
7. Negotiate and research.
Thoroughly research the local market, property values, and recent sales to ensure you are making an informed offer. Be prepared to negotiate with sellers to potentially secure a better deal or favorable terms.
8. Consider a down payment gift.
Most of the mortgage loan programs available these days allow borrowers to use gift money from a third party to put toward their down payment. This can help reduce one of the biggest hurdles associated with buying a home in California.