California housing has hit a new record, as the median home price in the state is now more than $900,000 for the first time in history.
This record-breaking report comes as many locals in the state cannot afford to buy a home. An ongoing housing shortage in California has further exacerbated this crisis.
California Homes Hit High Price
According to new data released by the California Association of Realtors, the median home price in the state is now $904,210. For the first time in California history, the average price for a home is above $900,000.
Home prices have jumped about 11.4% when compared to prices seen last year, in April of 2023.
California Has the Most Expensive Houses in the US
A survey found that four out of five of the most expensive US counties are in California, with the fifth one in Massachusetts.
The most expensive county to live in is Santa Clara County, with an average house price of over $1.5 million. The cheapest within this top five in California is San Francisco County, with an average house price of over $1.3 million.
Mortgage Rates in California
While California home prices have continued to rise, many analysts claimed that the sale of homes could cool because of high mortgage rates.
However, mortgage rates are now around 7%, yet people are still buying homes in California. Though rates have fallen slightly since October 2023 when it was almost 8%, this percentage remains high for many potential homebuyers.
Sellers Have Adjusted
California Association of Realtors President Melanie Barker has explained that this data signals that sellers have adjusted to this new market.
“April’s rebound in both home sales and price shows the resilience of California’s housing market and is a signal that buyers and sellers are beginning to adjust to the higher interest rate environment,” Barker stated.
Wealthy Buyers Can Afford California House Prices
One group of people who don’t appear to be affected by the rising California house prices are wealthy buyers. This is especially the ones who can afford a house with cash and aren’t bothered by interest rates.
It is these people who have helped the prices to rise, and they are likely to continue to rise if this continues. With these prices rising, it will be a struggle for anyone not considered as wealthy to be able to afford anything in this area.
Why Aren’t People Selling Their Houses?
There are several reasons why people are no longer selling their homes in California. One of the main reasons is the high-interest rate of 3%.
This is especially true as they will have to buy a new home themselves, so they, too, will be subject to the high house prices. Selling a home also means they would lose any equity they got from the sale of their house, which makes selling a home pointless.
Sellers Are Buying in Other States
As it’s pretty pointless to sell and buy in California, California homeowners are selling in California and then buying in other states where the house prices are cheaper, such as Tennessee, Nevada, or Arizona.
This is because their money can go a lot further in these states than in California. However, this only applies to people who can move states. As many people cannot do this, the California real estate market is still pretty empty.
House Prices Are High Despite Falling
Despite these high prices, the housing market has still plunged by 40% in some areas. While this makes it slightly easier for buyers, it means some sellers are losing money.
Some house prices are going down by more than $1 million. However, as many buyers are still struggling to come up with the money, sellers are still struggling to sell their houses, with many being on the market for more than 60 days.
Some Areas of California Are Dropping House Prices
Even though most of California still remains high-priced, there are a few areas of the Golden State where house prices are starting to drop.
One of these places is Ukiah, whose house prices have dropped by 6.52%. This area is between San Francisco and Eureka, where the average house price is $475,866.
Economic Concerns
This report also reveals that California homebuyers don’t seem to be too concerned about ongoing economic concerns that many other Americans have at the moment.
Sometimes, people slow down in home buying during periods of economic uncertainty. That doesn’t appear to be the case in California at the moment.
An Ongoing Housing Crisis in California
This report also comes at a time when California is struggling to deal with a housing shortage crisis throughout much of the state. There are simply not enough houses around for all of the state’s citizens.
As a result of this crisis, there aren’t enough houses on the market. This has helped home prices skyrocket in the past few years.
California Needs 180,000 New Houses
Reports suggest that California needs to build 180,000 new houses every year to keep up with supply and demand.
However, the state government has only been able to build half of this amount in the last decade, which has caused issues for people wanting to buy affordable housing in the Golden State.
No Suitable Areas for New Housing
One of the issues the Californian government is having with building new houses is that there aren’t enough appropriate areas left that haven’t already been built on to build new houses.
Even though California is the third largest US state by size, most of it has hills and mountains across deserts. As none of these areas are suitable for living, there is only a limited amount of space available.
Houses Prices Rose in 2022
This isn’t the first time house prices have risen in California recently. The last time this happened was in 2022, during a surge after the COVID-19 pandemic.
However, prices quickly fell again when buyers started pulling out of deals, and the number of available houses went up. However, this soon changed in 2024 when homeowners stopped selling, and there became a shortage on the market.
Prices Shot Up in 2024
While home prices have increasingly been rising in California for years now, the housing market has seen home prices shoot up in 2024 alone.
Since March 2024, home prices have risen by almost 6%. Sales of $1 million homes in the state have also increased and are currently up 40% since April of 2024.
The Sale of Million-Dollar Homes
The fact that many homes worth more than $1 million have been sold in the past year has helped to drive up the cost of California’s median home price.
However, more homes that previously weren’t worth this much money now are. Even previously affordable areas of California now have homes that are going for more than $1 million apiece.
Increases Throughout the State
While certain cities, such as San Francisco, have seen a great increase in home prices in just one year, median home prices have increased in many areas throughout the state.
Tustin currently has the fastest-rising housing prices in the entire state, as prices have risen by 11.7%. Now, this Orange County city has a median house price of $1 million.
San Francisco Rises in Price
San Francisco has had a few problems recently — but this hasn’t seemed to impact its housing market.
Even though some analysts have claimed that a Bay Area exodus was underway, this California area has still seen a huge increase in housing prices, signaling a competitive market. Now, prices are up by 15.5%.
Affordability in California
Unfortunately, many locals throughout California have realized that they cannot afford to buy a home in this current high-priced market.
According to a 2023 report, home affordability in the state hit a new low not seen in 16 years. Now, residents in California need to make at least $222,800 a year to afford a home in the state.
Only a Small Percentage of People Can Buy Homes in the Golden State
Only about 15% of Californians can now buy an average home. Jordan G. Levine, the chief economist at the California Association of Realtors, discussed this gap in who can afford homes — and who can’t.
“There’s kind of a tale of two economies happening where folks at the top end of the income spectrum are still punching above their weight,” Levine explained. “… But if you’re already right at the affordable level, there’s not a next tier down to shop in at all.”
People Are Leaving California
High house prices are just one of the reasons why people are leaving California. It has gotten to the point where people are being priced out of their own homes and are choosing to go and live in cheaper areas.
This is especially because there are less homes available than people wanting to buy them. Even renting has become tricky. Due to both of these factors, most people are choosing to look elsewhere.
Available Homes and a Falling Population
Even though it’s only a slight increase, there has been a recent rise in the California housing market, which might be a relief to people who want to buy a home there.
In addition, California’s population has been falling for three years in a row, mostly due to rising house prices. This means there is at least a bit more availability for people wanting to buy a home in the Golden State.
California’s Exit Tax
With many people choosing to leave the Golden State and California having a budget deficit, the state government has introduced an exit tax for those wanting to move elsewhere.
This tax is mostly targeting wealthy individuals and businesses. However, there is still worry among current Californian residents that this tax could significantly affect them and force them to stay in the state as opposed to being able to move to a cheaper area.
