Is it a Good Time to Buy a House in California in 2024?

California's housing market has been a rollercoaster in recent years, and the question of whether now is a good time to buy a house is on many people's minds. In 2024, California's housing affordability has shown some improvement compared to previous quarters and the same period last year, mainly due to slower home price growth and more favorable interest rates.

While the market presents opportunities, it's important to carefully consider the current situation before making such a significant decision. Let's dive into the factors influencing California's housing market in 2024 and help you determine if now is the right time for you to purchase a home.

Is it a Good Time to Buy a House in California in 2024?

The Current State of California's Housing Market

The California Association of Realtors® (C.A.R.) recently reported that California's housing affordability improved in the third quarter of 2024, compared to both the second quarter of 2024 and the same quarter of 2023. This improvement is largely attributed to a moderation in home price growth and a dip in interest rates.

According to C.A.R.'s data, 16% of California households could afford to buy the median-priced single-family home, which was $880,250 in the third quarter of 2024. That's up from 14% in the second quarter and 15% in the third quarter of 2023. It's important to remember that this is still a lower percentage compared to the peak of 56% in the third quarter of 2012, indicating that California continues to face a significant housing affordability challenge.

To afford this median-priced home, a household would need a minimum annual income of $220,800. This would allow them to make a monthly payment of $5,520, including principal, interest, taxes, and insurance (PITI), assuming a 20% down payment and a 6.63% interest rate.

In addition to single-family homes, the affordability of condos and townhomes also saw an increase. 25% of California households could afford to buy a median-priced condo or townhome, which was $670,000. A minimum annual income of $168,000 was needed to manage a monthly payment of $4,200.

These figures show a slight improvement in affordability but still highlight the ongoing challenges. The data clearly shows that California's housing market remains relatively expensive compared to the rest of the country. For instance, more than one-third of households nationally could afford to buy a median-priced home in the third quarter of 2024, which is significantly higher than California's affordability rate.

Factors Influencing California's Housing Market in 2024

Several factors have influenced the state's housing market throughout 2024, and they continue to shape its future:

1. Slower Home Price Growth:

California's home price growth has slowed down. In the third quarter of 2024, home prices rose by just 4.3% year-over-year, the slowest increase since the third quarter of 2023. This slower growth is likely due to a combination of factors, including rising interest rates, increased inventory, and reduced buyer demand.

While this slower growth is positive for buyers, the prices are still significantly higher than in many other parts of the country. I believe that as we enter the traditionally slower home-buying season, we'll likely see some further softening in home prices, particularly if inventory levels continue to rise.

2. Fluctuating Interest Rates:

Interest rates have been a significant factor in the housing market. Early in the third quarter, rates were on a downward trend and reached their lowest point in early September, which is likely what contributed to the increased affordability. However, since then, mortgage rates have begun to climb again.

It's likely that rates may fluctuate a bit before the end of the year. I've been following the trends very closely, and I feel that there is less chance of a significant drop in rates in the next few months as opposed to a few months ago. As a homeowner and a real estate investor for a long time, I've found that this fluctuation can be quite unnerving for people trying to make major financial decisions.

3. Inventory Levels:

Inventory levels have been slowly increasing in some areas of California, particularly as we head into the cooler months. This increased inventory is giving buyers more options and might lead to less competition for homes, potentially leading to fewer bidding wars and more time to negotiate prices. However, it's worth remembering that inventory can fluctuate, and it's not a consistent trend across all regions and property types.

4. Economic Conditions:

The overall economic environment plays a role in the housing market. While the economy has been performing better than expected, and that has contributed to the rise in interest rates, I am watching for any changes in the economy and the impact it might have on employment and consumer confidence. These economic uncertainties can impact buyer confidence, impacting their desire to purchase a home.

County-Level Differences in Affordability

Affordability differs significantly across California's counties. While the state as a whole saw some improvement in the third quarter, it's essential to look at specific regions to get a more accurate picture of the local market.

Most Affordable Counties:

• Lassen County (52% affordability) remained the most affordable county, with the lowest qualifying annual income of $66,000.
• Glenn and Tuolumne Counties (both 40% affordability) followed closely.
• Amador and Tehama Counties (both 38% affordability) were tied for the next highest.

Least Affordable Counties:

• Mono County (7% affordability) was the least affordable.
• Monterey County (10% affordability) had the second lowest affordability.
• Los Angeles and San Luis Obispo Counties (both 11% affordability) tied for the third least affordable, each requiring a minimum annual income of at least $218,000 to purchase a median-priced home.
• San Mateo County continued to be the most expensive, with the highest minimum annual qualifying income of $514,400.

Counties with Affordability Changes:

• On a quarter-to-quarter basis, only three counties saw a decline in affordability, and three remained unchanged. Forty-seven counties saw an improvement from the second quarter.
• Compared to a year ago, 40 counties were more affordable, six were less, and seven were unchanged.
• Plumas County experienced the largest year-over-year decline in affordability, falling 8 points.
• Lassen County had the second biggest drop, falling 6 points.
• Merced and Sutter Counties also saw significant year-over-year drops, each falling 3 points.

As you can see, there are considerable differences in affordability across the state. I've found that it's imperative to understand the specific market conditions of the region you're interested in before you make an offer.

So, is it a Good Time to Buy a House in California in 2024?

That depends on your individual circumstances, goals, and risk tolerance. Let's look at the pros and cons:

Pros:

• Improved Affordability (slightly): While still challenging, affordability has improved somewhat compared to previous quarters and the same time last year due to slower price growth and lower mortgage rates (at least for a period of time).
• More Negotiating Power: Increasing inventory in some areas gives buyers more leverage to negotiate with sellers, potentially getting a better price or securing concessions.
• Lower Competition (in some areas): The reduced buyer demand and increased inventory have reduced the level of competition in some areas.
• Opportunity to Lock in a Lower Interest Rate (if rates dip again): While rates have been on the rise recently, if they dip again, you could potentially lock in a more favorable interest rate for your mortgage.

Cons:

• Still Relatively Expensive: Even with the recent improvement, California's housing market remains significantly more expensive than other parts of the country.
• Interest Rate Volatility: Mortgage rates have been climbing again, making it more challenging for some buyers to qualify for a loan and increasing their monthly payments.
• Economic Uncertainty: The current economic environment has uncertainty that could impact job security and consumer confidence. This can affect buyer confidence in the market.
• Potential for Home Prices to Remain High: Even with a slowdown in home price growth, there's no guarantee that prices will not return to the rate of increase we saw in previous years.

My Personal Opinion:

As a California resident, I've witnessed firsthand the challenges and opportunities that come with this market. While I don't have a crystal ball and cannot predict the future of the market, I believe that the current situation presents a decent opportunity for buyers to enter the market, particularly if they are able to secure a lower interest rate. It's crucial to be strategic and patient.

Based on my experience, I'd suggest buyers consider the following:

• Get pre-approved for a mortgage: This will give you a clearer understanding of how much you can afford and helps demonstrate to sellers that you are a serious buyer.
• Shop around for the best mortgage rate: Rates can vary significantly between lenders, so do your homework and find the best deal.
• Focus on areas with rising inventory: This will give you more leverage in negotiations with sellers.
• Work with a knowledgeable and experienced real estate agent: A local expert can help you understand the intricacies of the local market and guide you through the process.
• Be prepared to walk away if you are not comfortable with the price or terms: Don't get emotionally attached to a property.

Conclusion

The California housing market in 2024 presents both challenges and opportunities for buyers. While affordability has shown a slight improvement, it remains a significant hurdle for many. If you're a well-prepared and financially stable buyer who's ready to do their research and work with a local real estate agent, the current market may be a decent time to buy a house in California. It's essential to consider the pros and cons carefully, understand your personal financial situation, and be prepared to make informed decisions.

I hope this article has provided you with insights into the current California housing market and given you some tools to make informed decisions. Good luck with your home search!