California housing shortage triggers cycle of despair (2024)

FAQs

What is causing the housing shortage in California? ›

The imbalance between supply and demand; resulted from of strong economic growth creating hundreds of thousands of new jobs (which increases demand for housing) and the insufficient construction of new housing units to provide enough supply to meet the demand.

High costs of living, inadequate wages, and wealth and income inequality; A safety net that does not provide sufficient housing or supportive services.

As a result, there is a sizable shortage of new homes after more than a decade of under-building relative to population growth, according to a new analysis from Realtor.com released Wednesday. The gap between single-family home constructions and household formations grew to 6.5 million homes between 2012 and 2022.

That's largely due to the shortage of housing supply, which has hit middle income buyers the hardest. Thanks to elevated mortgage rates, the housing market is missing around 320,000 homes priced at or below $256,000 – the maximum price a middle-income buyer earning up to $75,000 can afford.

CAR in its 2023 California Housing Market Forecast report, had predicted a 7.2% drop existing single-family home sales in 2023. They believed it would reach 333,450 sold unit units, down from their projected previous sales volume of 359,220 units for this year (19.2% less than the 444,520 homes sold in 2021).

At the height of the pandemic, as people relocated from major cities, rental prices dipped everywhere, according to Jon Leckie, a data journalist for Rent. The rental market stayed depressed for about a year before experiencing a steep rise around August or September 2021.

The Biggest Culprit: The Lenders

Most of the blame is on the mortgage originators or the lenders. That's because they were responsible for creating these problems. After all, the lenders were the ones who advanced loans to people with poor credit and a high risk of default.

Subprime Mortgage Crisis

Sometimes referred to as the greatest trade in history, Paulson's firm made a fortune and he earned over $4 billion personally on this trade alone.

Low-Income Households Are Particularly Affected by Unaffordable Housing. Households with the lowest incomes are by far the most likely to have housing costs that are unaffordable.

Story at a glance

California currently has the largest deficit of homes at 980,000.

Which cities have the worst housing shortage? ›

Between 1970 and 1980, California home prices went from 30 percent above U.S. levels to more than 80 percent higher. This trend has continued. Today, an average California home costs $440,000, about two–and–a–half times the average national home price ($180,000).

All the cities on this graphic are classified as severely unaffordable⁠—and, for the 12th year in a row, Hong Kong takes the top spot as the world's most unaffordable housing market, with a score of 23.2.

The root cause of these broad-based price increases are imbalances in supply and demand. There are three primary reasons demand may outpace supply: supply shocks, increased money supply and consumer expectations.

According to the 2023 International Housing Affordability Survey by Demographia, three out of the 10 least affordable housing markets are in Australia and New Zealand, two are in Canada and four more are located in the United States. The least affordable housing market is Hong Kong.

Although home prices are expected to improve in the second half of the year, the California median home price is projected to decrease by 5.6 percent to $776,600 in 2023, down from the median price of $822,300 recorded in 2022.

Homebuyer.com data analysis indicates that, for first-time home buyers, June 2023 is a good time to buy a house relative to later in the year. This article provides an unbiased look at current mortgage rates, housing market conditions, and market sentiment.

Home prices are likely to continue falling.

Prices are expected to fall nationally by 5% with the bulk of the price falls to happen in expensive areas, affecting California greatly. “We're estimating about a 5% drop nationally,” says Rick Sharga, executive vice president of market intelligence at ATTOM Data.

PUBLISHED: June 28, 2022 at 3:00 p.m. | UPDATED: June 30, 2022 at 10:52 a.m. Rent payments are being skipped by 1.3 million Californians, according to new Census Bureau data.

Landlords must also give tenants sufficient warning before increasing rent. If the rent increase is less than 10%, landlords must provide notice 30 days before the increase can take effect. If the rent increase is more than 10%, the landlord must provide notice 90 days before it can take effect.

Can a landlord raise rent more than 10% in California? ›

Annual rent increases are limited to 80% of the percentage increase in the regional Consumer Price Index (CPI). Overall increase may not exceed 10% in any 12-month period. Rent increases are limited to 60% of the percentage increase in the regional consumer price index (CPI) annually.

The company can build equity.

If the company has borrowed money to purchase the house, it can build equity over time, essentially increasing the percentage of the home it owns outright and can then borrow against later on.

The 2000s United States housing bubble was a real-estate bubble affecting over half of the U.S. states. It was the impetus for the subprime mortgage crisis. Housing prices peaked in early 2006, started to decline in 2006 and 2007, and reached new lows in 2011.

President Biden's American Rescue Plan (ARP)—which represents the largest single-year investment in ending homelessness in U.S. history—helped prevent a surge of homelessness.

According to McKinsey report published in 2009, recession-resistant industries include consumer staples, healthcare, telecommunication services, and utilities, among more. In 2008, the total returns to shareholders fell for all sectors by over 20%, but consumer staples was an exception to this.

The easiest way to get rich during a recession is to invest as much money into the stock market as you can. When there's a recession, stock market performance declines. Consumers spend less and companies earn less, causing investors to worry.

Michael Burry, head of Scion Asset Management, in Cupertino, Calif., September 2010. Michael Burry rose to fame after he predicted the 2008 U.S. housing crash and managed to net $100 million in personal profits, and another $700 million for his investors with a few lucrative, out-of-consensus bets.

The California HOME Act—otherwise known as Senate Bill (SB) 9—took effect on January 1st, 2022 and makes it possible for homeowners to split their home's lot and build up to four homes on a single-family parcel.

Californians spend disproportionate shares of their income on housing ... 55% of renters in California are cost burdened, compared to 50% in the US; 38% of homeowners in California are cost burdened, compared to 28% in the US.

In 2021, the homeownership rate among Black households in California was 35.6% — two and a half percentage points more than it was in 2016. However, the overall homeownership rate in California is 55%, according to the U.S. Census Bureau.

What are the 3 states most at risk of a housing downturn? ›

California, Illinois, New Jersey, and Delaware are home to the most at-risk housing markets, according to a Special Housing Risk report released by real estate data firm ATTOM. “Some parts of the country remain considerably more exposed to housing market declines than others,” says Rob Barber, CEO of ATTOM.

Housing in California is expensive due to high demand and low supply. With strong demand from millennials and retirees drawn to California's warm climate, the limited supply of housing has driven up property values.

California's chronic shortage of housing manifests itself in sky-high housing costs, the nation's worst poverty and its highest level of homelessness.

Five states—Kansas, Washington, Nebraska, Utah, and Missouri—have averaged less than one month of housing supply since the beginning of 2022. In contrast, eight states have averaged more than 2 months' supply, including expensive states for housing like New York, New Jersey, and Hawaii.

California's largest spending areas per capita were public welfare ($3,466) and elementary and secondary education ($2,452). The Census Bureau includes most Medicaid spending in public welfare but also allocates some of it to public hospitals.

California continued to lose residents in 2022, but the state's population decline is slowing as immigration ramps up again following the COVID-19 pandemic. The state is currently home to about 38.9 million people, down more than 138,400 year-over-year, according to the California Department of Finance.

The least affordable was Miami, where the median-priced home costs $598,000 and would require a monthly payment of $3,183 to cover mortgage and taxes — more than 85 percent of the local median household income of $44,581 (or $3,715 a month). Los Angeles and New York followed — no surprise given their steep home prices.

Which US city is the No 1 most affordable housing market? ›

Food prices are expected to grow more slowly in 2023 than in 2022 but still at above historical-average rates. In 2023, all food prices are predicted to increase 6.2 percent, with a prediction interval of 4.9 to 7.5 percent.

After peaking at 6.2% in 2022, we expect inflation to fall to 3.5% for 2023. Over 2024 to 2027, we expect inflation to average just 1.8%—below the Fed's 2% target.

Spending around 30% of your income on rent is the golden rule when you're trying to figure out how much you can afford to pay. Spending 30% of your income on rent can help you reach a healthy balance between comfort and affordability. On a median income, 30% should get you an apartment you can truly call home.

Union City, California

The tradeoff is that it has the lowest rent out of all 10 cities. With a $122,054.66 annual cost of living, you'll need $10,171.22 per month to make a life there.

Austria has the best housing system.

Housing cost in Vienna has remained around 25% of their income and they have largely avoided house price inflation.

Feeling political pressure to solve California's severe housing shortage and ballooning homelessness, state lawmakers are pushing new bills to increase production of affordable homes and strengthen tenant protections against evictions and surging rents.

Strict zoning regulations are a primary cause behind the housing shortage in San Francisco. Historically, zoning regulations were implemented to restrict housing construction in wealthy neighborhoods, as well as prevent people of color from moving into white neighborhoods.

Are homes in California dropping? ›

But a smidge of good news could be coming Californian home-buyers way. The average house price has dropped in the last year, falling 1.7% since April 2022 to stand at $728,134. Home prices are likely to continue falling.

California Housing Market Overview

In April 2023, home prices in California were down 9.01% compared to last year, selling for a median price. On average, the number of homes sold was down 38.6% year over year and there were 21,415 homes sold in April this year, down 34,898 homes sold in April last year.

In 2008, the housing market bubble burst when subprime mortgages, a huge consumer debt load, and crashing home values converged. Homeowners began defaulting on the home loans.

But because California is so large, it still has the second-highest number of vacant homes - about 8.7% according to the report, or around 1.2 million empty homes. In the United States alone, there are about 16 million homes sitting vacant, according to the report which used census data.

Out of 24 of the 50 most populous U.S. metro areas where median sales prices fell, San Jose was tops of the list with a -17.2% YoY decline. Coming in at number three was San Francisco with an -11% YoY decline. Oakland was fourth with -10.9 YoY decline.

Building all types of housing is still the best way to alleviate housing cost burdens. Increasing the supply of housing, through completing large planned housing developments or reducing administrative barriers to creating new homes, drives the largest gains in affordability.

Is it a good time to buy a house in the current California market? It's always a good time to buy a house in California, according to the Oldhams. California homes have steadily appreciated over time. Historical data shows the average rate of appreciation in California came in at 6.77% annually over a 39-year period.

With mortgage rates declining faster than expected, home prices are likely to remain mostly flat throughout 2024. This will be good news for buyers who have been waiting on the sidelines for a good time to enter the market.