If you are thinking of buying a house in California in 2024, you might be wondering if it is a good time to do so. The answer depends on your personal and financial situation, as well as the market conditions and trends. Let us take a look at some of the factors that may influence your decision, such as the housing supply and demand, the home prices and affordability, the mortgage rates, and the economic outlook.
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Is it a Good Time to Buy a House in California?
Affordability on the Rise (Slightly)
There's some positive news: there's been a slight improvement in affordability in the first quarter of 2024 compared to the end of 2023. According to the California Association of Realtors (C.A.R.), 17% of California households could now swing the median-priced single-family home. This might not sound like a huge jump (it's up from 15%), but it's a shift in the right direction.
What Does this Mean for Your Budget?
Here's the reality check: to comfortably afford that median-priced home (which clocked in at a hefty $814,280 in Q1 2024), you'd need a minimum annual income of $208,400. That translates to a monthly mortgage payment of over $5,200, assuming a 20% down payment and a 6.86% interest rate.
Interest Rates: A Double-Edged Sword
Those interest rates are down a bit from the end of 2023, which is a plus. But here's the catch: with the U.S. economy chugging along, the Federal Reserve isn't likely to cut rates anytime soon. So, significant improvements in affordability might be on hold for a while.
Condos and Townhomes: A More Affordable Option?
If single-family homes seem out of reach, condos and townhomes might be a more realistic option. The good news: 24% of Californians could afford the median-priced condo/townhouse in Q1 2024. The bad news: you'd still need a healthy income of around $167,600 to manage the $4,190 monthly payment on a $655,000 condo.
California vs. The Nation: Affordability in Perspective
While California's housing market has its challenges, it's important to remember it's not an island. Nationwide affordability has also dipped slightly compared to last year. Nearly 40% of U.S. households could afford the national median-priced home in 2023, and that number has fallen to 38% in 2024.
County-Level Breakdown
The data shows a mixed picture across California's counties. While some counties saw a slight improvement in affordability in Q1 2024 compared to the previous quarter, others experienced declines. Here's a closer look:
- Winners:39 counties saw an uptick in affordability, likely due to a combination of lower interest rates and slower home price growth.
- Losers:Affordability worsened in 4 counties compared to Q4 2023.
- Stalemate:Affordability remained unchanged in 10 counties.
Most and Least Affordable Counties
The affordability gap between counties is significant. Lassen County remained the most affordable in California in Q1 2024, with a 51% affordability index. This means that over half of Lassen households could afford the median-priced home in that area. On the other end of the spectrum, several counties, including Mono and San Luis Obispo, had affordability indexes below 11%, making homeownership a challenge for most residents.
Here's a table summarizing the most and least affordable counties in California:
| County | Affordability Index (Q1 2024) | Minimum Qualifying Income |
|---|---|---|
| Lassen | 51% | $66,000 |
| Tehama | 39% | Not Available in Data |
| Plumas | 37% | Not Available in Data |
| Shasta | 37% | Not Available in Data |
| Tuolumne | 36% | Not Available in Data |
| Mono | 4% | $222,000 |
| San Luis Obispo | 10% | Not Available in Data |
| Orange | 11% | $222,000 |
| San Diego | 11% | $222,000 |
| Monterey | 11% | $222,000 |
| Santa Barbara | 11% | $222,000 |
Year-Over-Year Trends
The affordability picture isn't much brighter when compared to a year ago. Only 6 counties saw improvements in affordability, while 46 counties experienced declines. This suggests that housing has become less attainable for many Californians over the past year.
Siskiyou Countysaw the steepest decline in affordability, with a drop of 9 percentage points compared to Q1 2023. Plumas and Mendocino Counties also saw significant affordability declines.
Mortgage Rates and Economic Outlook
A third factor that affects the housing market is the mortgage rates and economic outlook. In general, when mortgage rates are low and the economy is strong, buyers tend to have more confidence and purchasing power and vice versa. In 2023, California faced a challenging economic situation, with slower growth and higher inflation. The gross domestic product (GDP) grew by only 1.7% in 2023, while the consumer price index (CPI) rose by 3.9%. This resulted in higher mortgage rates, which reached 6.7% in 2023, discouraging many potential buyers.
However, in 2024, the economic situation is expected to improve, with lower inflation and higher growth. The GDP is forecasted to grow by 0.7% in 2024, while the CPI is projected to drop to 2.6%. This will lead to lower mortgage rates, which are expected to decline to 6% in 2024, creating a more favorable market environment for buyers.
The Bottom Line: Is it a Good Time to Buy in California?
So, the big question: should you jump into the California housing market right now? The answer, like most things in real estate, depends on your individual situation. Here are some factors to consider:
- Your Financial Fitness: Can you comfortably swing the monthly payments with a sizable down payment? Don't forget to factor in property taxes and homeowner's insurance.
- Long-Term Plans: If you plan to stay in California for the long haul, buying can be a smart investment, despite the upfront costs. Historically, California home prices have risen over time.
- Market Conditions: While affordability has improved slightly, it's still a competitive market. Be prepared to act quickly and potentially make compromises on your dream home.
In summary, buying a house in California in 2024 may be a good time for some buyers, depending on their personal and financial situation. The housing market is expected to rebound from a sluggish year in 2023, with more supply and demand, higher prices and affordability, and lower mortgage rates and inflation. However, buyers should also be aware of the challenges and risks involved, such as the high competition, the low inventory, the rising costs, and the uncertain economic outlook.
