As interest rates rose and housing inventory remained scarce, the dream of homeownership in California moved even further out of reach for many prospective buyers.

According to a report from the California Association of Realtors, only 16% of households in the state were able to meet the qualification criteria for purchasing a median-priced single-family home in the second quarter. This marked a decline from 19% in the first quarter and 17% during the same period the previous year.

California is grappling with a severe affordability crisis that has the potential to impede both economic growth and population expansion. The high cost of housing in the state has prompted people and businesses to either leave California or opt against moving there in the first place, due to the stark contrast with more affordable housing markets in other parts of the United States.

Oscar Wei, Deputy Chief Economist for the California Association of Realtors, highlighted the long-term impact of these trends, explaining that over the course of three or four years, the combination of constrained housing supply and reduced affordability could diminish California's competitiveness if steps aren't taken to address the housing supply shortage.

In comparison to the national figures where over a third of households could afford a median-priced home at $402,600, the significantly higher California home prices make homeownership a greater financial hurdle. For instance, the median price for an existing single-family home in the state was $830,620, requiring an annual income of at least $208,000 to qualify for a 30-year mortgage after a 20% down payment. Condos and townhouses, with a median price of $640,000, necessitated a minimum income of $160,400.

Despite a 2.4% drop in single-family home prices across the state in the year leading up to June, monthly costs for buyers escalated due to the rise in mortgage rates, which hovered around 7%.