Housing Affordability Improves in California Despite Mortgage Rate Challenges

California’s housing affordability showed slight improvement during the third quarter of 2024, supported by slower home price growth and a temporary dip in interest rates earlier in the quarter. According to the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.), 16% of homebuyers could afford a median-priced, single-family home in Q3 2024, up from 14% in Q2 2024 and 15% in Q3 2023, based on data from the Traditional Housing Affordability Index (HAI).

This improvement reflects a positive shift for potential buyers, albeit within a challenging market. Affordability remains far below historical highs, with the Q3 2024 figure representing less than one-third of the index’s peak of 56% in Q3 2012.

Interest Rates and Affordability Challenges

Interest rates played a significant role in affordability trends this quarter. Rates began Q3 on a downward trajectory but reversed course in September, climbing above 7% in recent weeks—the highest level since early July. This increase follows stronger-than-expected economic performance, which reduced the likelihood of another major rate cut by the Federal Reserve in 2024.

While there’s still potential for rates to stabilize or decrease slightly before year-end, experts caution that the odds of meaningful declines have diminished compared to earlier projections. Mortgage rate fluctuations will continue to be a key factor influencing the housing market as we move into 2025.

The Bigger Picture

Despite these challenges, the uptick in affordability is a small yet encouraging sign for California’s real estate market. Slower price growth is providing some relief for buyers, even as high borrowing costs remain a hurdle.