I’m a firm believer that politics has no place in our role as service providers to our community. But when political changes impact our industry, we as professionals can’t simply ignore them. This isn’t a political opinion, nor an attempt to sway political perspectives. It’s a call to do what’s needed to best serve our community, no matter an individual’s political affiliation. The housing problem we’re facing across the country is complex; one too big to be fixed by a single president. If we ever have a hope of getting beyond the challenges driving up the average home price in California (and the rest of the country), we need you to work on changing things at the local level.
Reel Life
Over four months ago, on November 10, I shared in an Instagram reel my predictions for the foreseeable future of California home prices. Since then, actions at every level have only reinforced my message. I religiously subscribe to the 90/10 rule: focus 90 percent of your energy on the solution and only 10 percent on the problem. But when it comes to the rising average home price in California, the problem is complex. And, by comparison, the solution is elegantly simple. That’s why I’m going to break my own convention and spend a little more time discussing the housing crisis than I normally would. But rest assured, there is a solution. And it heavily depends on you. I’ll go over it toward the end of this blog.
The Average Home Price in California Keeps Climbing. And We’re Not Alone.
Inflation has already been pushing the average home price in California upward. In a 2024 study conducted by Clever Real Estate, U.S. home prices were shown to increase an average of 2.4 times faster than inflation since the 1960s. To put this in perspective, if home prices had increased at a rate that kept an even pace with inflation, the median price of a home in the U.S. in 2024 would have been $177,511. In the fourth quarter of 2024, the average home price in the U.S. was $419,200. And in California, it was double that figure.
California’s Legislative Analyst’s Office (LAO) frames it from a different angle. According to their research, the annual household income required to qualify for a mortgage on a mid-tier home in the Golden State was about $231,000 last September. A bottom-tier home would still demand a combined household income of $142,000. Just a year earlier, California’s median household income was $96,500.
Now, there are plenty of ways to get a home in California without meeting these thresholds. Our agents are helping people do it all the time. But the research points to a general truth. Wages just can’t keep up with this surge in California home prices.
Don’t Think You’re Safe Because You’re Renting
Of course, a rise in the average home price in California also means higher rents. From January 2020 through September 2024, rents increased by 35 percent across the state. If you’re mistaking this for regular growth, let’s go back a bit further to underscore just how dramatic the situation has become. The median monthly rent in California in 2024 was 104 times higher than it was in 1940. Even after adjusting for inflation, that’s 5.2 times higher than it would be if it maintained a steady trajectory.
How Tariffs Are Already Impacting Home Prices in America
Another stress point has been introduced to this challenge in the form of the tariffs on foreign trade instituted by the current presidential administration. These tariffs are meant to return focus to American production with American materials. But by disrupting a long-established and heavily entrenched system, we’re already starting to see an impact on building costs. Investors responded accordingly as the SPDR S&P Homebuilders ETF (XHB) plunged more than 22 percent.
Even as the administration paused the planned tariffs on Canadian and Mexican imports for a month, the National Association of Homebuilders (NAHB) estimated that the impending tariffs would tack an extra $10,000 onto the building cost of single-family homes across the country. America has historically relied on China (which has also been slapped with tariffs), Canada, and Mexico for a significant amount of our building materials.
The NAHB points out that softwood lumber is frequently sourced from Canada, whereas Mexico provides much of America’s gypsum, and China is a major source of steel, aluminum, and manufactured appliances. With America unequipped to pick up the slack on production at present, this places pressure on construction companies to either eat the costs or pass them on to their clients.
But even if you’re planning to weather the economic storm by buying American, it’s worth noting that tariffs on imports are bound to drive up American-produced building materials as demand outpaces supply. Housing market data provider Zonda predicts that tariffs will cause building materials to surge in cost anywhere between 6 and 14 percent.
Immigration Policy is Further Driving Up the Average Home Price in California
The current presidential administration’s increasing pressure on immigration and growing deportation initiatives will also directly impact the average home prices in California and other parts of the nation. Experts estimate that immigrants comprise anywhere between 20 and 30 percent of the country’s construction labor force. In California, that number is likely significantly higher; in the ballpark of 40 percent. Now, with a tightened focus on deportation efforts, we stand to lose a significant portion of this workforce, driving up California home prices even further.
The Power for Change Lies in You
Like I said, it’s a complex issue and one that won’t be solved with political grandstanding, campaign promises, or quick fixes. Rather than look at the leader at the top of the chain for a solution, I implore you to put your emphasis on local action instead. Because real change comes at the local level. And though California is doing what it can to increase housing production, the uphill battle is only made worse by local municipalities resisting the state’s efforts.
As a real estate agent, your commitment to your clients must come first. So, how can you protect your clients while changing things at the local level? You can start by highlighting to your clients the importance of acting now rather than later. I understand their hesitation. We’re taught that it’s risky to make a move while interest rates are high.
But the tariffs and immigration policies are going to continue prolonging an already critical housing shortage. That means that no matter the interest rate, competition is going to be steep. And lowering interest rates won’t magically make new housing inventory appear. Moving while interest rates are high means less competition, more room to negotiate, and better odds of your clients securing the homes they want.
Your Responsibility to Your Clients
Chances are good that your clients will be resistant to acting while interest rates are high. Especially because there are signs all around that rates are about to drop. The 10-year bond fell below 3.9%, often an indicator of lowering mortgage rates. And when those rates drop, refinancing is often a smart move. But the clients who put their plans on hold to wait for that drop are making a critical mistake. And as their agent, it’s your responsibility to help them realize it.
The concrete truth is that we’re not building enough homes. It’s nothing new. Builders slowed to a grinding halt in 2008. They stalled out again during the COVID-19 pandemic. And stopped yet again in 2023 when rates doubled. Now with these tariffs and immigration reform moving full speed ahead, we can’t expect construction to catch up with demand anytime soon. That means the average home price in California isn’t likely to drop in the foreseeable future.
This isn’t any more complex than simple supply and demand. Yes, rates will eventually drop. And, yes, buyers will gain more buying power. But what’s that worth when there aren’t nearly enough homes to go around? That’s why now is the true window of opportunity. But it’s up to you to illuminate that opportunity to your hesitant buyers.
Our Responsibility to Future Generations
Markets will continue to shift, and rates will go up and down. None of this is new. But don’t let standard market fluctuations blind you to an alarming fact in America: wealth is on the decline. That’s only partially down to circumstance. A lot more of the problem has to do with perception. And this is another way that you, as a real estate agent, must help.
In 1984, when my generation (Generation X) was coming into its buying power, the median age of a first-time homebuyer in America was 29 years old. Today, it’s 38 years old. That means today’s younger generations are being robbed of valuable time to generate equity and build investment power. And all because no one is emphasizing the importance of investment, nor the strategies to successfully achieve it.
Yes, the average home price in California is high. But so are wages. And, believe it or not, interest rates are lower than they were in those days! The American Dream isn’t dead. And, no, clients don’t need to deplete their savings on a down payment to get there. They just need to sacrifice early enough in life to make their actions count. They need to leverage our side hustle culture and gig economy to their advantage. And I think the average person would see these actions and sacrifices as more than worth it if they knew the benefits: freedom, control, and long-term wealth. But their grandparents, parents, and sadly, even their real estate professionals, are letting them down by not showing them the importance of investment.
Your Clients Are Counting on You
Agents, it’s up to you to turn this around one client at a time. And the sooner, the better. Because the absolute worst time to buy a new home is when rates drop, everyone waiting on the sidelines jumps back into the market, and competition shoots through the roof, driving up the average home price in California yet again. Use market hesitation to your advantage. Make your big moves now, secure your property, and refinance when the atmosphere is right.
Reach out to your broker, hammer out an actionable and quantifiable plan, and prepare to hit the market stronger. And if you never see your broker, consider a brokerage that gives you broker access. Property acquisition is still the most reliable way of establishing generational wealth. But it remains your duty to ensure your clients are making smart investments in this uncertain period. If you execute your plan properly, you won’t just be helping your clients endure the coming years. You’ll be helping them thrive through them.
After working with, and for, many different real estate firms, it became apparent to Harout that there was a major disconnect between what consumers needed/wanted and the service that was being provided to them. It was upon this realization that Harout founded and opened JohnHart Real Estate; and as the CEO/Principal Broker he has continued to break from the norm and redefine real estate with an insatiable appetite to give his clients the service and attention they deserve.
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