The affordability of California homes is dropping rapidly as prices continue to soar and now higher interest rates are compounding the problem. The California Association of Realtors® (C.A.R.) reported today that its Home Affordability Index (HAI) dropped 8 percentage points from the first quarter of 2013 to the second.

The HAI measures the percentage of homebuyers who can afford to purchase a median-priced single-family home in the the state. C.A.R. also reports on the affordability in select regions and counties within California.

A significant number of homebuyers were shut out of the market during the quarter as home prices and interest rates rose. The affordability index fell from 44 percent in the first quarter to 36 percent in the second, the first time the index had dropped below 40 percent affordability rate since the third quarter of 2008.. During the second quarter of 2012 the index was at 51 percent.

In the second quarter the price of a median priced single-family home statewide was $415,770 compared to $316,490 a year earlier. The effective composite interest rate was 3.64 percent compared to 3.55 percent in the first quarter of 2013 and 2.82 percent in Q2 2012a. These increases meant that, to purchase that median priced home would require an annual income of $79,910 to qualify for a 30-year fixed rate mortgage including taxes and insurance and assuming a 20 percent down payment. The required monthly payment on this mortgage would be $2000. In the second quarter of 2012 the qualifying income to purchase a median priced home was $62,440.

C.A.R. Said nearly all regions of the state experienced sharp quarter-over-quarter declines in housing affordability, with Bay Area and coastal regions recording the greatest decreases in the index due to significantly higher home prices. At an index of 71 percent, Madera County was the most affordable county of the state, while San Francisco and San Mateo counties tied for the least affordable at 17 percent. The housing affordability index for the United States in the second quarter was 60, based on a median home price of $203,500 and qualifying income of $39,110.