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Update: Q1 California Housing Affordability Drop to Start 2022

Miss one blog post for the first time in five years, then the flood gates open failing to post another two posts back-to-back.

It has been that busy for our team thanks to this incredible South Bay real estate market.

To my faithful weekly readers: Please accept my apologies on the missed blogs.

We are getting back on track this week!

As you know, I have committed to reporting on the Housing Affordability Index (HAI) every quarter until further notice since my August 2021 post: “California Housing Affordability Index Might Be Flashing Warning Signs

While the first warning sign back almost a year ago might have been a false alarm, the next upcoming quarters will likely be California’s biggest residential real estate test in over a decade.

I explain more about coming quarters later in the blog, but first let’s get to the latest Q1 number.

First Quarter HAI Drops Slightly

The premise of my quarterly post on the Housing Affordability Index number was back in August of 2021, where we saw statewide affordability take a precipitous drop from 27 to 23 percent – meaning only 23% of the state population could afford the median priced home.

To refresh your memory, C.A.R. takes current borrowing costs, taxes, and insurance while assuming a 20% down payment and uses that monthly payment to see how many residents can afford the median priced home currently.

Below is a list of the affordability numbers for 2021:

  • Q1 – 27%
  • Q2 – 23%
  • Q3 – 24%
  • Q4 – 25%

The Q1 number to start the year came in at 24%.

The official C.A.R. 2022 Q1 numbers are as follows:

  • Statewide median home price of $797,000
  • Minimum annual income needed to buy is $158,000
  • Based on monthly PITI payment of $3,950 at a 3.97% interest rate (20% down)
  • 24% of California households can buy the median-priced home

What stands out to me to the most in these numbers is the 3.97% interest rate and for two reasons:

  1. Last quarter the calculated rate was at 3.28% and with the increase, affordability only fell a point.
  2. Rates are currently sitting above 5%, so how will that affect affordability next quarter?

For context, I talk more on the 5% rates and affordability a couple sections below.

Deeper Numbers for Perspective

I always like to pluck additional commentary from C.A.R., but the Association was much more muted this time around in their press release.

Readers would find it interesting to note that 32% of households could afford the median priced condo/townhome, which is down from 40% a year ago. What’s more, the median price condo/townhome is not that far away from single family homes sitting at $640,000.

In the Southern California region, housing affordability deteriorated in all counties with Orange County sitting at just 13% affordability – for reference, Los Angeles County was at 20% (both numbers factor in local pricing dynamics too).

Why is the Next Quarter Such a Test?

Well, if you remember my guess from last quarter’s post – I thought we had a chance for a big drop in affordability because of three reasons.

  1. I expected median prices to jump sharply (they didn’t)
  2. Interest rates were trending to 3.5% or higher (that happened)
  3. Income increases could slow down after end of the year raises (not sure)

All in all, we only got a slight drop in affordability.

Next quarter will be the big test because if interest rates are above 5% today, then the calculated interest rate is going to be pulled even higher – perhaps to it highest level in years.

Could those surging borrowing costs pull affordability down to the 23% “flashing red” number, or maybe even take us down by two points to our lowest affordability number in over a decade?

That is why next quarter is BIG. Seriously, it is going to be massive.

Conclusion

While the South Bay’s real estate prices are a bit stronger than the statewide marketplace, you cannot fight the numbers.

The California Housing Affordability Index is sitting right on the edge of sustainability.

If it ticks up a point next quarter, the market will likely stay stable. If it ticks down a point, maybe two, next quarter thanks to surging interest rates, then it might be time to get a little nervous about the housing market rally.

We’ll see what unfolds in three months.

To conclude, since I have missed back-to-back weekly posts, you probably missed my listing at 25915 Chalmette Lane in Rolling Hills Estates. It was sold in less than a week, with multiple offers, and is going hundreds of thousands of dollars over asking.

Do not fret! This week, I have a newly listed Rolling Hills Estates home for round two.

Exuding effortless style, this sophisticated Montecillo home is one you’ll be proud to call your own. A peaceful, tree-lined neighborhood welcomes you to this splendid elevated residence that enchants passersby with its beautiful curb appeal. From the covered porch, step inside to discover an impressive interior clad in rich hardwoods, a crisp white palette, and multiple glass sliders framing picturesque outdoor views of the expansive backyard and pool. A gas fireplace with a stone surround radiates warmth as you receive your guests in the living room. Exposed vaulted ceilings, wainscoting, and a stylish chandelier elevate your experience in the dining room with a nearby seating area overlooking the backyard. A large fully retractable picture window spills ample light across the chef’s kitchen equipped with top-of-the-line stainless steel appliances, plenty of gorgeous cabinetry, gleaming countertops, and a breakfast nook. Soft carpet lends to the comfort of your private bedroom retreats graced with well-sized walk-in closets. A pass-through bath with a shower/tub combo accommodates two bedrooms while the other has a tastefully tiled ensuite. Topping them all, the primary suite has a generous closet, direct patio access, and a lavish primary bath highlighting a double vanity and oversized walk-in shower. Outside, multiple seating areas surround the pristine pool bordered by verdant foliage and mature trees. Alfresco dining is bliss as you bask in the breeze and panoramic views from sunrise to sundown. Other noteworthy home details are a dedicated laundry room and a large attached 3-car garage with epoxy floors, along with custom owner upgrades of A/C (2016), new roof (2015), wifi thermostat and Rachio smart sprinkler system, remote access security system with motion sensor and front yard/driveway camera, Sonos speaker system, and chic design updates by Caroline Burke in 2017. This wonderful opportunity is just a short block away to the Jack Kramer Tennis Club and in close proximity to the Rolling Hills Country Club to enjoy world-class golf and social amenities – not to mention one of the most commuter-friendly locations in all of Palos Verdes. Just in time for the summer sun, your perfect estate home with pool awaits!

DRE: 01779425

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