Despite the Federal Reserve’s sudden interest rate cut in September, mortgage rates did not fall as steadily as expected, and home sales in California came to a standstill in September. Industry insiders have found that homeowner’s insurance is one of the factors holding back potential buyers from purchasing a home, and the California Center for Real Estate (CCRE) held a “Housing Summit” on Wednesday, October 30th in Los Angeles. Melanie Barker, president of the California Association of Realtors (C.A.R.), said California’s real estate industry is at a critical juncture, with a number of different challenges coming together to affect the normal course of the market.

Homeowners Insurance: Relief on the Horizon but Still a Long Way Off

With premiums soaring, large insurers pulling out, and major legislative changes underway, homeowners insurance is undoubtedly the biggest issue for the housing industry this year, Barker noted. Some members of the public could not get homeowners insurance anyway, while others never filed a claim but lost their coverage anyway.

At the beginning of the year, home loan rates and home affordability were at the forefront of the public’s attention; however, the focus soon shifted to homeowner’s insurance, an issue that neither existing homeowners nor buyers could circumvent. The bad news is that California is still in an insurance winter.

The C.A.R reports that 7 percent of members surveyed in 2023 said many deals fell through because buyers couldn’t get affordable homeowners insurance. By this year, the percentage of members reporting this had reached 13 percent.

While the California Insurance Commissioner has promised major insurance reforms by the end of the year to lure insurers back to the state, experts are concerned that these mitigating measures will not be immediate and that insurers will need to see substantial changes more quickly.

Practitioners: Many ‘Home Killer’ Bills Introduced in California

Jeff Schroeder, senior vice president of land, planning and operations at Ponderosa Homes, a Northern California real estate firm, believes California’s legislative actions are not providing enough support to address the housing shortage.

‘There are two bills in the state legislature this year that are assisting in creating more housing, but at the same time there are eight bills that are actually killing housing.’ He said, ‘Over the last so many years of the housing crisis, we’ve continued to get a lot of “housing killer” bills.’

Experts believe that a multi-pronged approach to supply is necessary to address the chronic shortage of housing supply; among them, consumer advocacy is key to reversing decades of underinvestment in housing.

More People Can’t Afford California Home Prices

According to the C.A.R. ‘Traditional Housing Affordability Index’ (HAI), in the second quarter of this year, only 14% of California homebuyers could afford a single-family home at the median home price ($906,600), the lowest level in nearly 17 years. This means that people need to earn at least $236,800 per year to afford a single-family home.

Also, the percentage of California households that can afford condos and townhouses has dropped to 22%. It takes a household earning no less than $180,000 a year to afford a condo or townhouse with a median price of $690,000 per year. One of the reasons for the skyrocketing prices is still a shortage of housing and a shortage of supply.

The good news, though, is that the market is now entering its typical slow home-buying season and the inventory of homes for sale is steadily improving.

‘Uncertainty about the economy and the expectation of more significant interest rate cuts have caused many buyers to delay purchasing a home,’ said Jordan Levine, vice president and chief economist at C. A.R. But on the other hand, the fourth quarter may provide a good time for potential buyers who have been waiting to re-enter the market.