Housing costs in California have long been higher than the national average and have grown substantially in recent years. In this post, we provide a brief update on housing costs and affordability in California.
California Home Prices Far Exceed the Rest of the Country. California home prices continue to be much more expensive than the rest of the US. Prices for mid-tier homes are about $755,000—more than twice as expensive as the typical mid-tier US home. (Mid-tier homes reflect home values in the 35th to 65th percentile range.) Perhaps even more importantly for a first-time home buyer, a bottom-tier home in California is now about 30 percent more expensive than a mid-tier home in the rest of the U.S. (Bottom-tier homes are those with values in the 5th to 35th percentile range.)
Prices Grew Rapidly from 2020 to 2022... As shown in the figure above, California home prices grew very rapidly from 2020 to 2022, with mid-tier home prices increasing by about 14 percent per year and bottom-tier home prices increasing by about 15 percent per year. However, since July 2022, home prices have remained relatively stable, with close to no net increase in middle-tier or bottom-tier CA home prices through December 2025. Since July 2022, US mid-tier home prices have increased about 1 percent per year.
...But Are Now Close To Pre-Pandemic Trend After the rapid growth and recent stabilization, California home prices are now similar to what they would have been if they had continued to grow at pre-pandemic rates. Between 2000 and 2020, bottom-tier and mid-tier home prices in California grew at an average annual rate of about 6 percent, similar to average growth over the entire post-pandemic period. If prices had continued to grow at pre-pandemic rates between 2020 and 2025, bottom-tier and mid-tier CA home prices would within about 1 percent of current levels.
Incomes Have Not Kept Pace With Housing Costs. While home prices have stabilized, housing has become less affordable for most Californians in recent years. The figure above shows that the income needed to qualify for a mortgage on a bottom-tier home and median-tier home in California has increased more quickly since 2020 than median household income. In fact, about 45% of California households would likely qualify for a bottom-tier home mortgage based on their income in 2025, down from about 60% in 2019. For mid-tier homes, only 23% would likely qualify in 2025, down from about 35% in 2019.
Growth in Monthly Payments Has Exceeded Growth in Rents. The gap in the monthly cost of owning a home versus renting has also widened in recent years. The figure above shows the estimated monthly mortgage payment (including principal, interest, property taxes, and insurance) for a two-bedroom home in California compared to the typical rent for a similar property. In December 2025, the estimated rent for a two-bedroom home was about $2,680. In contrast, monthly payments for a two-bedroom home were about $4,350 (62 percent more than renting). While favorable tax treatment and savings opportunities make homeownership attractive for many households even if monthly costs are higher, the gap between renting and owning has widened considerably in recent years.
Relative Cost of Homeownership Compared to Renting Has Grown in Most of California's Counties.The growth in the premium paid to own a home compared to renting since 2020 has been substantial in many parts of the state. As shown in the map above, the ratio of monthly payments to rent on a two-bedroom home has grown since January 2020 in 33 of the 48 counties with available data. Growth in the relative unaffordability of homeownership has been highest in the Bay Area and Los Angeles: in Santa Clara County, e.g., monthly payments are now 3.3 times monthly rent for a two-bedroom home.
Home Sales Remain Low Despite Recent Increase in Inventory. Prices are unlikely to decline unless more existing homeowners—or builders of new homes—choose to offer homes for sale. The figure above shows the number of homes available for sale (inventory) and the number of completed home sales across 18 California metropolitan areas. After largely declining from 2020 to 2023, inventory increased in 2024 and the first half of 2025. However, after increasing in 2020 and 2021, single-family home sales have since remained well below pre-pandemic levels. This suggests that despite more homes available for purchase that prospective homebuyers do not find current prices and borrowing costs enticing.
Rapid Mortgage Rate Increase Limits Homes Available For Purchase. The California housing market is facing a unique challenge due to the rapid rise in mortgage interest rates over the past few years. Before 2022, the average rate was around 3 percent. But by October 2022, it had surged to almost 7 percent and has remained high. This dramatic increase has created a stark divide: as of September 2025, 77 percent of California homeowners had mortgage rates below 5 percent, while new buyers face the much higher rate. For an existing homeowner, the financial cost of selling their home with a low-rate mortgage and buying a new one at today's rates is significant. For example, if a homeowner with a mortgage rate of 5 percent sold their home and bought a new similarly-priced home at current interest rates, they would have monthly payments approximately 11 percent higher. For the typical homeowners, this amounts to over $180,000 more in payments over the life of a 30-year loan. As a result, many are choosing to stay put, significantly limiting the number of homes available for sale in the state's tight housing market.