NEWS

C.A.R. news release: CA housing affordability by ethnicity

For release: April 11, 2024

Housing affordability for all Californians deteriorates as interest rates set record highs, C.A.R. reports

Affordability gap for Black and Hispanic/Latino households remains wide.

· Less than one in five of all Californians earned enough income to support the purchase of an $813,980 statewide median-priced home in 2023, down from just over one in five from 2022.

· By ethnic groups, about one-fifth of White California households and less than one in 10 Black and Hispanic/Latino California households could afford the same median-priced home, while 28 percent of Asians could buy a median-priced home.

· Assuming a 20 percent down payment on a $813,890 median-priced home, a minimum annual income of $204,800 was needed to make monthly payments of $4,190, including principal, interest, and taxes at 30-year fixed-rate mortgage at a 6.66 percent interest rate.

Multimedia: 2023 Housing Affordability by Ethnicity slides

2023 Housing Affordability by Ethnicity motiongraphic

LOS ANGELES (April 11) – Housing affordability continued to deteriorate for all ethnic home-buying groups last year as interest rates rose higher and the typical mortgage payment for a median-priced home climbed from a year ago, the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) said today.

Eighteen percent of all Californians earned the minimum income needed to purchase a home in 2023, down from 21 percent in 2022. At the same time, housing affordability for White/non-Hispanic households fell from 25 percent in 2022 to 21 percent in 2023. Nine percent of Black and Hispanic/Latino households could afford the same median-priced home in 2023, down from 11 percent for both ethnic groups. The significant difference in housing affordability for Black and Hispanic/Latino households illustrates the homeownership gap and wealth disparity for communities of color, which could worsen as the economy slows and rates remain elevated in 2024. Housing affordability was better for Asians but also declined from the prior year, with the index registering 28 percent of Asian homebuyers who could afford the median-priced home in 2023, down from 32 percent in 2022, according to C.A.R.’s Housing Affordability Index.

Housing affordability gaps narrowed last year but remained wide as interest rates continued to climb while home prices stayed relatively flat. The affordability gap between Blacks and the overall population in California improved from 9.7 percentage points in 2022 to 8.5 percentage points in 2023, and the gap for Hispanics/Latinos improved from 9.6 percentage points in 2022 to 8.9 percentage points in 2023.

According to the Census Bureau’s American Community Survey, the 2022 homeownership rate for all Californians was 54 percent, 64 percent for non-Hispanic Whites, 59 percent for Asians, 45 percent for Hispanics/Latinos and 35 percent for Blacks.

With Black and Latino households having much less wealth than the national average, C.A.R. last year urged the state to fully fund the California Dream For All Shared Appreciation Loan assistance program, which provides a loan for 20 percent of the home purchase price, in the California 2023-2024 state budget. This program will help bridge down payment and closing cost hurdles that people of color often experience more acutely and allow many working Californians to get on the housing ladder and gain the benefits of homeownership.

Additionally, in an effort to address California’s growing housing affordability crisis and racial homeownership divide, C.A.R. has partnered with nonprofit housing organizations to provide closing cost grants up to $10,000 for eligible first-time home buyers from an underserved community. Since 2022, C.A.R.’s Housing Affordability Fund’s Pathway to Homeownership Closing Cost Assistance grant program has provided closing cost grants totaling $2 million for 208 first-time home buyer households from an underserved community throughout California. By the end of 2024, C.A.R. expects to have provided a total of $3 million to more than 300 first-time home buyer households since inception of the Pathway to Homeownership Closing Cost Assistance program.

A minimum annual income of $204,800 was needed to qualify for the purchase of a $813,980 statewide median-priced, existing single-family home in 2023. The monthly payment, including taxes and insurance on a 30-year, fixed-rate loan, would be $4,190, assuming a 20 percent down payment and an effective composite interest rate of 6.66 percent. The 2023 California median income for Whites was $103,870, $120,630 for Asians, $75,950 for Hispanics/Latinos and $63,800 for Blacks — an income gap of nearly one-third that of the overall population, which was $92,420.

C.A.R.’s Housing Affordability Index (HAI) measures the percentage of households that can afford to purchase a median-priced, single-family home in California. C.A.R. also reports affordability indices for regions and select counties within the state. The index is considered the most fundamental measure of housing well-being for home buyers in the state.

Key points from C.A.R.’s 2023 Housing Affordability by Ethnicity report include:

Of the major counties for which C.A.R. tracks affordability by ethnicity, the affordability gap between Black and the overall population in 2023 was the largest in Contra Costa (-15 percent), San Francisco (-15 percent) and Fresno (-13 percent) counties. Other counties that had a double-digit affordability gap for Black households include Alameda (-12 percent), Santa Clara (-10 percent) and San Mateo (-10 percent). The affordability gaps between Black and the overall population at the state and the nation were -9 percent and -14 percent, respectively.

For Hispanic/Latino households, the affordability gap was the biggest in Santa Clara (-11 percent), Contra Costa (-10 percent), Alameda (-9 percent) and Solano (-9 percent). The affordability gaps between Hispanic/Latino and the overall population at the state and the nation were -9 percent and -7 percent, respectively.

At an affordability index of 6 percent, San Francisco and San Diego were the least affordable counties for Black households, while Kern and San Joaquin were the most affordable counties at 29 percent and 24 percent, respectively.

The least affordable counties in 2023 for Hispanic/Latino homebuyers were Los Angeles (7 percent) and Orange County (7 percent), and the most affordable was Kern at 29 percent.

For Asian households, Orange County was also the least affordable, with 15 percent earning the minimum income required to buy a median-price home. Kern was the most affordable county with 55 percent of Asian households having the minimum income required to buy a median-priced home.

Orange County was the least affordable county for non-Hispanic White households, with 16 percent earning the minimum income required to buy a median-price home. Fresno was the most affordable at 43 percent.

Leading the way…® in California real estate for more than 118 years, the CALIFORNIA ASSOCIATION OF REALTORS® (www.car.org) is one of the largest state trade organizations in the United States with more than 200,000 members dedicated to the advancement of professionalism in real estate. C.A.R. is headquartered in Los Angeles.

NAR Settlement Factsheet

Settlement Factsheet provided by NAR:

NAR and plaintiffs have reached a proposed settlement agreement that would end litigation of claims brought on behalf of home sellers related to broker commissions. The agreement would resolve claims against NAR, over one million NAR members, all state/territorial and local REALTOR® associations, all association-owned Multiple Listing Services (MLSs), and all brokerages with a NAR member as principal that had a residential transaction volume in 2022 of $2 billion or below. The settlement is subject to court approval.

Ultimately, NAR believes this was the best outcome we could achieve in the circumstances. The large settlements that other corporate defendants have already reached were important factors going into what NAR could achieve in this settlement.

Coverage of NAR’s Release

Implications for Members

Over one million NAR members are released from liability nationwide.
NAR’s release covers all members other than agents affiliated with HomeServices of America and its related companies (the last corporate defendant still litigating the Sitzer-Burnett case), and employees of the remaining corporate defendants named in the cases covered by this settlement.

Implications for Brokerages Owned by Members

Brokerage entities owned by members that had a residential transaction volume of $2 billion or below are released from liability nationwide.
While we would have preferred to protect all industry players, ultimately NAR could not persuade the plaintiffs to include the largest brokerages.
The agreement provides a mechanism for nearly all brokerage entities that had a residential transaction volume in 2022 that exceeded $2 billion to obtain releases efficiently if they choose to use it.

Implications for NAR and other REALTOR® Associations

NAR is released from liability nationwide.
Any officers, directors, or other participants in NAR activities are released from liability nationwide for their role or participation in NAR.
All state/territorial and local associations of REALTORS® are released from liability nationwide.

Implications for Association-Owned MLSs

The release includes all MLSs that are wholly owned by one or more REALTOR® associations.

Implications for Other MLSs

The agreement provides a mechanism for other MLSs to be covered by it if they choose to use it.
This mechanism includes opting into the MLS practice changes that are a part of the agreement and paying a per-subscriber fee to the Settlement Fund.
While we would have preferred to protect all industry players, the MLSs not wholly owned by a REALTOR® association were excluded by plaintiffs.

Practice Changes

We were able to retain the right of consumers to continue to have cooperative compensation as an option so long as they pursue it off-MLS through negotiation and consultation with real estate professionals.
NAR has agreed to put in place a new rule prohibiting offers of compensation on the MLS. The change will go into effect in mid-July 2024.

Implications for members

There will continue to be many ways in which buyer brokers could be compensated, including through offers of compensation communicated off MLS — as we have long believed that it is in the interests of the sellers, buyers, and their brokers to make offers of compensation — but using the MLS to communicate offers of compensation would no longer be an option.
The types of compensation available for buyer brokers would continue to take multiple forms, depending on broker-consumer negotiations, including but not limited to:
- Fixed-fee commission paid directly by consumers
- Concession from the seller
- Portion of the listing broker’s compensation
Compensation would continue to be negotiable and should always be negotiated between agents and the consumers they serve.

Implications for home buyers and sellers

This settlement would preserve the choices consumers have regarding real estate services and compensation.
After the new rule goes into effect, listing brokers and sellers could continue to offer compensation for buyer broker services, but such offers could not be communicated via the MLS.
The settlement expressly provides that sellers may communicate seller concessions — such as buyer closing costs — via the MLS provided that such concessions are not conditioned on the use of or payment to a buyer broker.

New rule about written agreements

NAR has long encouraged its members to use written agreements because they help consumers understand exactly what services and value will be provided, and for how much.
The settlement provides that MLS participants working with buyers must enter into written representation agreements with those buyers.
This change will go into effect in mid-July 2024.

Implications for members and home buyers and sellers

After the new rule goes into effect:
- MLS participants acting for buyers would be required to enter into written agreements with their buyers before touring a home.
- These agreements can help consumers understand exactly what services and value will be provided, and for how much.

Other cases concerning the MLS cooperative compensation Model Rule

Because the agreement would not end litigation as to all defendants, litigation concerning cooperative compensation may continue.
In Batton I (N.D. Ill.), NAR’s answer to plaintiffs’ amended complaint is due on April 14, 2024. There is a status hearing on May 7, 2024.

Next steps in settlement process

Court approval and opt outs

There are strong grounds for the court to approve this settlement because it is in the best interests of all parties and class members.
We can expect the process of court review to take several months or more.
In large class action settlements like this one, objections and opt outs are common, and the plaintiffs and NAR will handle them as they come.

NAR operations

Nothing about this settlement changes NAR’s commitment to lead our industry forward and support our members.
One of the critical advantages of this agreement is that NAR would be able to pay the settlement amount over time.
- NAR would pay $418 million over approximately four years.
- This is a substantial sum, and it will be incumbent on NAR to use our remaining resources in the most effective way possible to continue delivering on our core mission.
We will continue to deliver unparalleled value to, and advocacy on behalf of, REALTORS®, including through our learning opportunities and resources, research, and member tools.
NAR has evolved multiple times in its history, including by introducing the MLS Model Rule in 1990s in response to calls from consumer protection advocates for buyer representation, and is doing so again now.
Our leadership and staff remain focused on their work to deliver the value that has set this association apart for so many years.

Why settling now makes sense

NAR explored settling throughout the litigation and also carefully considered the other

legal options available to us. These included:

Appealing: A win on appeal would only have addressed the verdict in the Sitzer-Burnett case (not any of the copycat cases) and may only have resulted in a new jury trial, leaving members and consumers with continued uncertainty.
Chapter 11 reorganization: In theory, Chapter 11 would have enabled NAR to eliminate its own liabilities while pursuing an appeal of the Sitzer-Burnett verdict. But we believe that would have left members with continued uncertainty and potential liability risk. Chapter 11 would also have paused the litigation against NAR but not the other defendants in the cooperative compensation cases.

Ultimately, while NAR continues to believe that it is not liable for the home seller claims related to broker commissions and that we have strong arguments challenging the Sitzer-Burnett verdict, we decided to reach this settlement to put claims to rest for over one million NAR members and other parties who would be released under the agreement.

What’s next

The practice changes will go into effect in mid-July 2024.
The settlement is subject to court approval, which is a process that we can expect to take several months or more and will include an opportunity for interested parties to object. In large class action settlements like this one, objections are common.
We will move to have litigation about the MLS cooperative compensation Model Rule stayed, or paused, as to NAR pending the settlement approval process.
NAR will also continue to provide updates about the settlement process as it unfolds on competition.realtor.