The California housing market is facing one of its most daunting affordability crises
Sunkissed beaches, beautiful people, famous shopping districts and breathtaking hiking trails – it’s little wonder California is a dream destination for homeowners. But many locals simply can’t afford to purchase a property. Research from the California Association of Realtors found that in 2023, housing affordability in the Golden State reached an all-time low, with just 16% of buyers able to purchase a single family home.
But, beyond financial challenges, climate-related disasters such as wildfires are adding new layers of risk for California homebuyers and lenders. Despite the somewhat idyllic location, you can’t turn a blind eye to the natural disasters that have plagued California recently – and it’s having a knock-on impact on both home insurance and mortgage rates. Speaking to MPA, Yan Minkovitch (pictured), of Progressive Mortgage, explained that changing insurance policies are complicating the market – however, he also believes solutions are available.
"The insurance policy is definitely a problem," he said. "But at the same time, there's always a solution. Traditionally, we've been looking for California-admitted insurers. Now, we're going out of state to get insurance. Insurance is insurance – it really depends on the disaster that's waiting to happen and the solvency of the company. But these companies have quite a bit of funds behind them. It might be time to pay the piper for them."
California housing market faces affordability turmoil
The California housing market is facing one of its most daunting affordability crises, with mortgage rates soaring and home prices remaining stubbornly high. As of February, the average mortgage rate in California is 6.49% for a 30-year fixed mortgage, 5.80% for a 15-year fixed mortgage, and 6.39% for a 5-year adjustable-rate mortgage – and while that’s reflective of the national average, the house prices in Cali are markedly higher. The median listing for the state is $750,000, according to Redfin.
While some experts sound the alarm on declining affordability, Minkovitch has a more measured take, arguing that while the market has certainly changed, opportunities still exist for savvy buyers.
"I'll be honest with you, I don't see that statistic," Minkovitch said when asked about reports that only 15% of Californians could afford a median-priced home. "Wages have increased tremendously. So I believe they kept up for the most part with inflation. It all depends on the individual that's applying. It depends on their debt load.
“Because in order to qualify for a loan, it's a debt-to-income ratio. It’s not a credit score issue – as we all know. But the credit score is going to determine what kind of interest rate [you get] based on the current market. My opinion is that, while a lot of people have a two- and three-percent interest rate, the problem is you're going to need a two-income household.”
Creative Financing: A trend for the few, not the many
As borrowing costs rise, some buyers have turned to alternative financing solutions, including co-buying and shared equity agreements. But according to Minkovitch, these arrangements remain more of a niche trend than a market-wide shift.
"I really don't see it reshaping traditional mortgage lending," he said. "I do see shared equity and stuff like that coming onto the market, but for the most part, everybody that I know of is sticking to traditional methods. The people taking advantage of these are usually the more experienced home buyers – somebody that has a little bit of experience, maybe refinanced once or twice, and is exploring all the other financial options that are available. But for the most part, 95% of people that walk through my door ask me for a traditional mortgage."
And then there are the new legislative changes, such as California’s mortgage fraud law. California Penal Code 532f PC, or real estate fraud, applied to anyone involved in the mortgage process – including the borrower and the lender. Examples of this fraud include but are not limited to forged documentation, rent skimming, foreclosure fraud and illegal property flipping. However, Minkovitch doesn’t believe the concerns about this regulation are stifling lending.
“Not at all. Restrictions and changes are constant in this business. It's always changing, whether it's Dodd-Frank, Reg Z, or anything else. It's just a matter of adapting and making it work. As far as fraud prevention – well, listen, disclosure, disclosure, disclosure. That’s the aim."
Looking ahead, some industry watchers predict a market rebound fueled by lower interest rates and increased home sales. Minkovitch, however, remains cautious about making bold predictions, emphasizing that market shifts are difficult to forecast with certainty.
"Anybody that's going to predict has a 50-50 shot of being right," he told MPA. "With all the legislative changes coming from the Trump administration and recent discussions – like Elon Musk talking about dissolving the Federal Housing Administration – there's a lot of misinformation out there. Most people think FHA is a loan. It's not. It's an insurance policy. And even if it's dissolved, you can still get mortgage insurance from private providers."
