California Average Monthly House Payment Tops $5,500

AENN

Chriss W. Street

MountainTopTimes Nov 30

The Legislative Analyst Office latest California home affordability analysis for the change in housing costs over the last 5 years found a dramatic increase in the spread between the cost of buying and renting a home, with the average monthly mortgage payment near record $5,536 per month.

California home prices have long been—and continue to be—much more expensive than the rest of the U.S., with a mid-tierCalifornia home now more than twice as expensive as the typical mid-tier U.S. home.

Even more concerning, the price of a California bottom-tierhome has risen so fast over the last 5 years that a California starter home is now about 30 percent more expensive than the average U.S. mid-tier home.

California home prices jumped during the 2020 to 2022 Biden inflation spike, but have flattened out over the last three years. As a result, the monthly payment to buy the average California home increased by about $1,000.

But the biggest culprit for the leap in California unaffordability has been the doubling of the interest rate for a 30-year mortgage from less than 3 percent in January 2021 to over 6% today that added another $1,500 to the monthly cost to buy a mid-tier California home.

The jump in mortgage rates also created a two-tier mortgage rate structure with 79 percent of California homeowners currently having a mortgage interest rate below 5 percent; while new buyers face average mortgage rates above 6% and first time buyers with a 700 credit scores face 7.25% rates.

For an existing homeowner, the financial penalty for selling their home with a low-rate mortgage and buying a similarly-priced new one at today’s mortgage rates would cause the monthly payment by jump by 11 percent.

For the typical California homeowner, the impact of the higher mortgage rate would amount to approximately $195,000 more in payments over the 30-year life of a loan. As a result, the locked-in lower mortgage payment cost has significantly constrained the supply of available homes for sale.

The cost of renting the typical California home jumped by about 45% over the last 5 years. But the average monthly payment for buying a modest 2-bedroom home at $3,402 is now 62% higher than the average $2,104 to rent a home or apartment in California.

The California median household income grew over the last 5 years by 26% from $81,000 in 2020 to $102,000 today. But it now takes a third more, or $136,000 annual household income to buy the average bottom-tier home; and 116% more, or $221,000 annual household income to buy the average mid-tier home.

The chart above reveals that there is wide spread between the monthly cost of purchasing a home in rural communities, versus urban communities; and an even wider spread between urban and suburban communities. But the percentage discount in renting versus purchasing a home is not as dramatic.

The data reveals that the Southern California percentage change in the average cost of purchasing a rural, urban or suburban home jumped about twice as fast as Northern California over the last 5 years. But the monthly costs associated with purchasing a bottom-tier home grew percentage wise more slowly in the Bay Area of Northern California than any part of the state.

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