Some of the highest price-to-income ratios in the nation are found in California. This is even more true in the coastal areas, where the numbers exceed both the national average of 17.5% of income spent on mortgage payments, itself up from 15.4% last year, and also the maximum advised by financial experts of 31%. Zillow cites figures of 54% of average household income in San Jose, 45% in Los Angeles and San Francisco, and 38% in San Diego. Even some inland areas are nearing that 31% threshold, with Sacramento at 29% and Riverside at 28%.
While rising interest rates affect all segments of the market, the low-tier homeowners are taking the biggest hit. Despite the mortgage value being lower, low-tier homeowners also typically have less income than high-tier homeowners, meaning they may actually be spending twice as much of their income on mortgage payments. Renters have it the worst; the average low-tier renter in Los Angeles would need to spend 121% of their income on rentals and is forced to seek outside assistance with making payments.
The increasing strain on buyer purchasing power is already starting to result in price cuts and eventually lower list prices. So, expect prices to trend downward even as interest rates go up.