• Housing affordability in California fell to a 15-year low in August, according to the California Association of Realtors.
• However, several cities, including San Francisco, Los Angeles and Sacramento, have all seen home prices fall by more than 5% from peak sale prices.

Housing affordability tanked in California this year. But the state's stratospherically-high home prices have also led to it witnessing some of the biggest drops in median sale prices since much of the US housing market peaked earlier this year.

Indeed, data provided to Insider from Zillow shows that California has more cities in the list of the top metros with the biggest drop in sale prices than any other state.

According to the stats, San Francisco, San Jose, San Diego, Los Angeles, Sacramento, and Oxnard (which is located near Ventura) have all seen home prices fall more than 5% from their peak values earlier this year. Additionally, Stockton has seen its median sale price drop 4.8% from its peak. That brings California's total to seven metros out of the top 20 for the nation that have seen the most severe drop in housing prices.

The abundance of California's cooling markets perhaps isn't too surprising when considering that it's one of the most expensive housing ecosystems in the country — a situation that had only gotten worse as rising mortgage rates weighed on wallets and buyers' purchasing power through much of 2022.

In separate data from the California Association of Realtors that highlights the third-quarter of 2022, the state's median home price was $829,760 for the period, a steep 48% increase over the typical US home price of $398,500. In other words, with the state's median income for a 4-person household being $98,644, only 18% of households in the state could afford the cost of a typical California home.

In order to close on a home purchase in California, the CAR says that the typical buyer would need to earn a minimum annual income of $192,800 and make a monthly payment of $4,820 — which includes principal, interest and taxes on a 30-year fixed-rate mortgage with a 5.72% interest rate.

"Despite the sizable quarter-to-quarter drop in median price, the share of households in California that could afford to buy a median-priced condominium or townhome continued to slide from last year as the cost of borrowing remained high," CAR researchers wrote.

California's housing cool down will escalate in 2023

Outside of mortgage rates, Californian buyers have also long struggled with insufficient levels of housing supply. The state has less available land in which to build, which means developers have to pay more for land acquisitions and pass those costs on to consumers or halt their efforts entirely. And then there are also higher than average property taxes which further adds to the state's lack of affordable housing options — a predicament that has only worsened during the pandemic.

So far it appears that 2023 is likely to be an even slower year for the state's housing market, especially if locals continue to leave and move to more affordable states. In 2021, California had the largest share of residents relocating to new housing markets, according to a January report from U-haul. The mass migration was caused in part by the emergence of remote work during the pandemic, as well as an exodus of several large tech firms — including electric automaker Tesla and software giant Oracle, among others — which relocated their headquarters to Texas since 2020.

According to CAR's October housing outlook, California's existing single-family home sales are projected to fall 7.2% from 2022's estimated 359,220 units. The pullback in demand could ultimately result in the state's median home price declining 8.8% to $758,600, the report adds.

While this may not be the most welcomed news for sellers, it will could finally give those who have enough income or savings a better shot at achieving homeownership in the coming months. However, buyers shouldn't be overly confident as it would require, effectively, a proper housing crash for prices to return to pre-pandemic levels. But experts have largely agreed that we should not expect to see anything remotely as dramatic as the spectacular housing bust of 2008.

"With the market shifting as home sales and prices are predicted to temper next year, buyers and sellers are adapting to the new realities of the market," CAR President Otto Catrina, said in the report, adding that for buyers "more homes for sale, less competition, and fewer homes selling above asking price, all point to a more favorable market environment for those who were outbid or sat out during the past two years when the market was fiercely competitive."