Between stubbornly high home prices, sharply rising interest rates and dwindling home listings, 2023 was a brutal year for Southern Californians hoping to become homeowners.
LAist received a number of audience questions this year that spoke to that reality. This inquiry came from a reader who described themselves as an L.A. Unified School District teacher with 25 years on the job: “How will I ever be able to buy a home?”
The truth is that the number of people who can afford a single-family home in Southern California is small — and getting smaller. The California Association of Realtors recently estimated that only 11% of L.A. County households are able to buy a median-priced home. That’s down from 14% last year.
Also according to the association, home-buying affordability in L.A. is now at its lowest point since 2007.
Real estate experts blame some familiar trends for putting homeownership further out of reach for the vast majority of Southern Californians.
One culprit is interest rates, said Richard Green, director of the USC Lusk Center for Real Estate. Earlier in the pandemic, homebuyers were able to purchase homes or refinance their mortgages at interest rates of 3% or less. But in 2023, those rates rose to around 8%.
“The payment that you need to make on the same house is in the neighborhood of double what it was a couple of years ago,” Green said. “That takes a lot of people who could have afforded to buy a house three years ago — which still wasn’t a lot of people here in Southern California — to a really small number.”
Rising interest rates did not cause a corresponding decline in home prices, Green said, because all those homeowners who locked in low mortgage rates became much less likely to sell their homes. Why would they want to go looking for a new home that could cost them twice as much?
That unwillingness to give up lower cost mortgages left prospective buyers with fewer options, leading to more competition and sticky prices. L.A. County’s median home price last month was $897,990, up 7.3% from the November 2022 median price of $836,630, according to the California Association of Realtors.
The ripple effects of plunging affordability can be seen throughout Southern California. L.A. County’s population declined by more than 90,000 people between July 1, 2021, and July 1, 2022, mirroring a statewide trend of residents leaving California in search of cheaper homes.
But that population decline should mean less demand for housing, and lower costs, right? Not necessarily.
With homeownership so wrapped up in the idea of starting a family, Green said the near impossibility of younger Southern Californians buying a home may also be playing a role in shaping decisions to marry and have children. Homes once lived in by families may only house one single adult today.
An analysis by the Public Policy Institute of California found that Californians aged 25 to 44 have driven some of the largest jumps in household formation in recent years — at a time when the number of people per household has fallen substantially. With fewer people living in each home, even a sharp population decline won’t ease pressure on housing costs.
“The average household size in L.A. has fallen very dramatically in the last 10 years,” Green said. “So you basically have what I imagine are higher income, smaller families pushing out lower income, larger families. The same amount of housing is having fewer people.”
All of these trends add up to even fiercer competition for Southern California’s limited number of homes — especially for the kind of detached, single-family homes many buyers envision when they imagine themselves achieving the California Dream.
Interest rates have already begun to fall, and they’re projected to decline even more next year. Stuart Gabriel, director of the UCLA Ziman Center for Real Estate, said that drop could help convince more homeowners to put their properties on the market, giving buyers more options.
“The flip side of that is that there's a pent-up demand for all those homes,” Gabriel said. And that demand could push SoCal’s notoriously high home prices even higher. “So that's not going to be any kind of instant cure,” he added.
Looking over the long term, housing experts say Southern Californians may need to adjust their expectations for what kind of home they can reasonably afford to buy. Zoning for single-family homes continues to dominate much of Southern California. But as one of the world’s largest megacities, the L.A. area is under a lot of economic and political pressure to develop denser forms of new housing.
“Maybe the future isn't in the form of single-family homes,” Gabriel said. “If you go to places like Playa Vista, you'll see beautiful communities comprised of townhouses that share walls.”
State lawmakers have required single-family neighborhoods across California to allow new forms of housing, such as backyard accessory dwelling units and new duplexes.
Though many Southern Californians continue to aspire to homeownership for its stability, tax benefits and wealth-building potential, renting is not inherently inferior. In many areas, renters are the majority.
Recognizing that for most Angelenos, renting is not just a short-term stepping stone to homeownership but a long-term reality, L.A. elected leaders spent 2023 passing new protections aimed at taming rent hikes and keeping Angelenos in their homes. Some of those elected leaders are now even renters themselves.
“I think the single-family home dream is one we've just outgrown,” Green said.
