Only 16% of California’s Residents Can Afford a Home—Is it Even Possible to Invest There?

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It’s no secret that California real estate isn’t exactly affordable. In fact, a new report from the California Association of Realtors (CAR) only drives that point home even more.

According to CAR’s data, California housing affordability has now slid to its lowest level in nearly 16 years. Only a mere 16% of households in the state can afford a median-priced home there (a whopping $830,620 as of the second quarter).

But the problem isn’t just the Golden State’s high home prices. It’s also major hurdles like painfully low inventory and rising mortgage rates. Per CAR’s July data, active listings are down over 30% in the state compared to one year ago, and mortgage rates, which now clock in well over 7%, have sent the median mortgage payment on a 30-year, fixed-rate loan to an eye-watering $5,200 per month.

“The market continues to be competitive,” says Jennifer Branchini, president of CAR, in a press release. “Many in the market aspire to become homeowners and are actively looking to buy, but the shortage of homes for sale and elevated mortgage rates remain challenging headwinds for them.”

In short: Buying real estate in California isn’t impossible—but it’s nowhere near easy (or affordable). 

Are you thinking of investing in California in the near future? Here’s what to keep in mind as you do. 

Choose Your Market Carefully

There’s a pretty wide range of prices and housing inventory across California cities, so while the ROI potential might not make sense in pricey spots like Los Angeles or San Francisco, for example, other Cali spots may tell a different story.

In the Far North region of the state, for instance, you’ll find California’s best pricing. The median price of homes sold here in July was just $376,420—down 7.1% from a year prior. Prices even declined in five of the six counties there.

The most affordable counties in California’s Far North are:

• Lassen (median price $280,000)
• Siskiyou ($296,000)
• Tehama ($320,000)
• Plumas ($364,050)
• Shasta ($379,000)

Redding is one Far North city you may want to take a look at. Its median sale price is just $375,000, and homes are sitting on the market for 38 days, on average. Rents in the area for a one-bedroom apartment have gone up 5% in the last year and 46% of the population rents.

At the same time, it’s important to consider that the lower costs may be related to the few job opportunities in the area (the labor force has steadily declined in Redding over the last 10 years) and its higher-than-average crime rate.

Outside the Far North, the California counties with the lowest price points (all under $400,000) are: 

• Del Norte
• Lake
• Merced
• Tulare
• Glenn
• Kings 
• Kern

Kern is home to Bakersfield. There, the median sale price is just $378,000, according to Realtor.com—a big contributor to the city’s relatively low cost of living (one of the lowest in the state, actually). Homes there are spending about 25 days on the market, and nearly 27% of listings saw a price drop in July.

Even better? Bakersfield’s population is growing, thanks, in part, to strong farming and healthcare industries in the area. The city has grown by over 6,000 residents since 2020.

Dos Palos, a small, rural town located in Merced County, has even better stats. Median sold prices sit at under $300,000, and rents—which clocks in at a median of $1,450 per month — have jumped $140 over the year. (Zillow even has the rental market labeled as “hot.”) Dos Palos has a lot of seasonal agricultural workers, which helps keep demand for rentals high in the area.

Finally, Fresno is another California place you might consider—especially if you’re eyeing rental property. Over 52% of the local population is made up of renters, and the typical rent is $1,547 per month. According to Realtor.com, the median sale price is just $370,000, up from $319,000 three years ago. Nearly a quarter of all Fresno listings had a price cut in July.

Just keep in mind: Fresno’s crime rate is pretty high compared to the rest of the state. Property crimes are particularly common, so having a good insurance policy is going to be key here.

Opt for Smaller Properties

Aside from choosing the right market, you can also look at smaller properties—specifically, condos and townhomes, which boast much lower prices than their single-family counterparts.

According to CAR, California condos and townhomes clock in at a median of $640,000 right now. That’s down from last year and a price that one in four Cali households can afford.

The median payment on these properties comes in at $4,010 per month—over $1,000 less than you’d pay on a single-family property.

Investing Out of State

If you do opt to invest in California real estate and are doing so from out of state, check out our Long-Distance Real Estate Investing book first and make sure to consult an on-the-ground pro. They can help you evaluate deals and point you toward potential opportunities in the markets you’re considering.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.