Sagebrush • Factors influencing real estate prices

 

 

Factors influencing Real estate prices.

Why Are California's Real Estate Prices Rising Despite Record Unaffordability? | Matt McCormick

For years, California's housing market has been a topic of significant debate, with many wondering if real estate prices will ever drop—especially as interest rates remain high. But according to Matt McCormick, a real estate expert with firsthand knowledge of the market in both the Bay Area and Los Angeles, the story unfolding today is quite different from what many expected.

As property values continue to rise, so too do rental rates, creating a tight housing market where both homebuyers and renters are feeling the pressure. McCormick explains that a lack of inventory on the market is driving up prices, with renters unable to transition into homeownership, which further drives up demand for rental properties. This dynamic, he argues, is contributing to a prolonged housing boom in the Golden State.
One of the key trends in California real estate today is the rise of multi-generational living. Parents are increasingly helping their children—and even grandchildren—purchase homes, or moving in together to share housing costs. McCormick discusses the motivations behind these changes, shedding light on how both buyers and sellers are adjusting to these unusual market conditions.
Interview with Matt McCormick: Navigating California's Real Estate Market
Matt, it's great to have you here. You're a real estate expert with experience across both the Bay Area and Los Angeles. What's going on in California's real estate market right now?
"Thank you for having me. There's a lot happening in the real estate market, and it’s unlike anything we’ve seen before. Normally, when interest rates go up, you’d expect housing prices to slow down. Buyers would retreat, and sellers would be more motivated to lower their prices. But in California, we're seeing prices continue to rise, even as interest rates climb. This is largely due to a significant lack of inventory, especially in desirable areas like the Bay Area and Southern California."

So, what's causing the shortage of inventory?
"Part of it is tied to the behavior of long-term homeowners. A large portion of California's home sellers are Baby Boomers. Many are sitting on homes with extremely low interest rates—some as low as 2.5% or 2.75%. With their homes appreciating in value, many are choosing to hold onto these properties rather than sell. This is often a financial decision; they’re seeing strong equity growth, potentially adding up to $100,000 a year, and they don't want to give that up. The idea of selling and paying taxes, or even relocating to places like Arizona, no longer seems as attractive when they can keep their homes and either rent them out or let them sit vacant, earning income."

What does this mean for the overall real estate market?
"It’s a big issue because it creates a situation where demand far exceeds supply. We're seeing fewer properties available for sale, and at the same time, more people are staying put in their homes or renting out their properties. The overall inventory shortage is exacerbating the affordability crisis. Renters who are unable to buy are now competing for rental properties, which only further drives up the cost of renting."

What are the motivations of buyers and sellers in today’s market?
"One of the biggest trends I'm seeing is multi-generational living. Parents are often stepping in to help their children—and even their grandchildren—buy homes. The idea of one family member being able to purchase a home in California is becoming increasingly difficult. However, with the help of extended family, these young buyers are able to pool their resources and secure a home."
"On the seller side, many Baby Boomers are holding on to their homes longer. You’re also seeing some people move their families into larger homes, not just for more space, but as a way to share living costs. For many, real estate has become an asset that can generate rental income, especially in the face of shrinking pensions and retirement plans. This change in behavior is creating a market where real estate is viewed less as a temporary living solution and more as a long-term financial investment."

The Rise of Real Estate as an Investment Strategy
You mentioned earlier that 83% of Californians' total net worth is tied to their home equity. How has this shift in wealth affected people's approach to buying and selling homes?
"Yes, 83% is the current statistic, and it’s a dramatic increase compared to what we saw just 15 or 20 years ago. When I first got into real estate, the number was closer to 60-67%. Today, that percentage has ballooned, and it’s not hard to understand why. Real estate values have skyrocketed, and for many homeowners, their property is their most valuable asset. It’s not just a place to live; it’s their retirement, their financial future."
"Take my own family as an example. In 1965, my parents bought their home for $38,000. Back then, they were nervous about a $175 monthly mortgage payment. Fast forward to today, and that same home could be sold for close to $5 million. It’s hard for younger generations to even fathom these kinds of returns."
What does this mean for people’s financial plans?
"In the past, many people relied on pensions or company retirement plans to fund their later years. However, with many corporations phasing out pensions and reducing 401(k) contributions, people are looking at their homes as a way to secure financial independence in the future. The idea of renting out properties, or even acquiring additional homes over time, is becoming a common strategy for building wealth and preparing for retirement."

Where Is the Market Headed?

Given everything we've discussed, where do you think the California real estate market is headed?
"Real estate is always cyclical. We’ll see some ups and downs, but the long-term trend is generally upward. In the short term, we may see some flat periods or brief declines, but the overall trajectory will likely continue to rise. We’ve seen it happen before, and I don't foresee any major changes in the next few decades."
"Just to put it into perspective, I’ve seen properties in California that were worth $2 million a decade ago now being valued at $4 or $5 million. And I wouldn't be surprised if, in another ten years, those same homes are worth $8-10 million. It’s a trend that has held for over 60 years in California, and while there may be temporary slowdowns or shifts in market conditions, the long-term outlook remains positive."
Conclusion: Despite record-high interest rates and skyrocketing housing costs, California’s real estate market continues to climb, largely due to inventory shortages and a growing trend of multi-generational living. With homeownership increasingly viewed as a wealth-building tool, many people are opting to hold onto their properties rather than sell. As a result, the market remains highly competitive, making it difficult for renters to transition into homeownership. For now, real estate remains a premium asset in California—one that continues to generate wealth and security for many residents.

Land has become more important than ever, especially as companies increasingly reduce or eliminate traditional security measures like pensions and 401(k)s. In response to these changes, people are turning to real estate as a tangible, reliable asset—something they can manage, control, and own. Unlike pensions or job security, real estate is not subject to corporate decisions or market volatility. It is a safeguard for personal and family financial stability.
However, not everyone is in a position to invest in real estate, which is creating a growing divide. We’re now seeing what we call "separation season," particularly affecting the middle class. Those who have successfully developed a strategic plan or business model to acquire real estate are positioned to thrive. This period of growth offers opportunities for those who are proactive, allowing them to take advantage of rising property values by entering the market, whether through small investments or purchasing more significant properties. On the other hand, those who have not been able to enter the real estate market are facing increasing challenges.
Many people, especially those who’ve been cautious or conservative, have been waiting for interest rates to drop before making a purchase. However, rates haven’t decreased, and property prices have only risen, creating a disconnect. A home that was once affordable now costs $300,000 more, leaving potential buyers with tough decisions. They may now have to lower their expectations and settle for a smaller property, such as a condo or townhouse, instead of the single-family home they initially envisioned. The longer they wait, the less affordable homes become, and they may eventually be priced out of the areas they want to live in.
This situation raises concerns about sustainability, especially when we look at California’s housing market. The average home price is around $800,000, and with taxes and insurance, monthly mortgage payments can easily reach $6,000 to $7,000. For many, this is simply unaffordable. The question arises: How long can this situation last?
The divide is further highlighted by the influx of high-paying professionals, such as engineers from major tech companies like Google. These individuals, often in their 30s, are pulling in significant salaries, bonuses, and stock options. They can afford to pay millions for their first homes, sometimes competing in bidding wars that push prices even higher. On the flip side, the majority of Californians—those with regular jobs or those just starting their careers—are struggling to keep up. With real estate prices outpacing income growth, many are beginning to question if they can continue living in their desired areas or if they’ll eventually have to leave.
Amid this uncertainty, there are concerns about whether this market will experience a correction or bubble. While many in the media have predicted market crashes in the past, the reality has been quite the opposite. Despite warnings, home prices have continued to rise, and experts predict that prices will grow another 10% to 15% in the next 18 months. As people’s portfolios grow due to strong market performance, they’re turning to real estate as a stable investment. For those fortunate enough to afford it, property is a valuable asset that continues to appreciate in value.
But what about renters? How are they affected? The reality is, many renters are struggling to keep up with rising rent prices, especially as wages fail to keep pace with living costs. The growing trend of multi-generational living is a response to these pressures. Many families are now looking for homes with space for aging parents or adult children. For example, some families are seeking properties with downstairs bedrooms or extra backyard space to build accessory dwelling units (ADUs). ADUs are becoming increasingly popular as a way to generate rental income while keeping the family close.
This trend is beneficial for both homeowners and renters. Renters are often willing to pay lower rents to live in these smaller units, helping homeowners offset their mortgage costs. Additionally, laws are evolving to allow for more flexibility in building and selling ADUs separately from the main home, making this a viable option for many families.
While the housing market is changing rapidly, one thing is clear: the divide between those who can afford real estate and those who cannot is widening. As housing prices continue to climb, many are being left behind. The key for homeowners and renters alike will be finding creative solutions to make housing more affordable and sustainable in the long term.

We need to prevent the number of renters turning into the homeless population from growing, but unfortunately, that's exactly what's happening. I see it firsthand, and it’s heartbreaking. Every Friday, I serve meals to around 80 people in my hometown. Many of them have regular jobs: some work as Walmart cashiers, others as elementary school teachers, yet they can only afford to live in motor homes provided by the city. These are people who are working hard, but simply cannot make ends meet due to skyrocketing living costs.
When I first started helping out in this neighborhood four years ago, I was standing right across from Google—just a stone's throw away from their headquarters. Back then, there were only about 20 motor homes parked in a city-owned lot in Mountain View. Now, that number has ballooned to 65 or 70, and the lot is about 80% full. The situation is only getting worse. These people are our neighbors, our coworkers—they could be the cashier at your local grocery store, or the teacher your kids look up to. But they’re struggling to survive, and many of them are living in conditions that are hardly visible to the public eye. We're pushing them to the outskirts, out of sight, hoping we don’t have to confront this crisis head-on.
Yes, I interact with these people regularly. I know most of them by name, and I see them regularly when I drop off meals. We’re talking about families, sometimes with young children, who are trying to stay positive despite their difficult circumstances. They’re just trying to make the best of what they have, often in motor homes that are decades old, but still functional. Every week, I bring them hot meals—sometimes chicken and rice, thanks to a local restaurant that provides food as a charitable donation. They’re so grateful, always trying to find something positive in the situation. They want to make sure their kids are safe, going to school, and getting by. They don’t care about the bigger political debates or issues in the media; they care about surviving day by day and ensuring their kids have a stable future.
The problem, though, isn't just about homelessness. It’s tied to the rising cost of living, and rents are only going up. As home prices continue to climb, so too do rental rates, because they follow the same pattern. It’s basic math: if the value of homes skyrockets—from, say, $250,000 to $2.25 million—the rent around those homes will inevitably increase as well. As real estate prices rise, rents in the surrounding areas follow suit, pushing more people out of affordable housing options. We’ve reached a point where many are trapped in a cycle of rising rent and stagnant wages.
Incomes aren’t keeping up with the cost of living. Even with mortgage rules tightening since 2008, it’s still incredibly hard to qualify for a home, which means that more people are being forced into the rental market, driving prices even higher. And with fewer available homes to rent, the competition among renters intensifies, driving prices up even further.
A concerning trend is emerging, one that’s becoming more apparent in the conversations I’m having with people in the industry: parents and even grandparents are beginning to help their children or grandchildren buy property. It’s becoming a way to ensure that the younger generation won’t be locked out of homeownership forever. In fact, many are dipping into their savings, their nest eggs, to provide their children or grandchildren with the financial help they need to get into the market now—before prices get even more out of reach.
This shift is becoming a necessity, not just a trend. Without this financial support, many young people will find it nearly impossible to own property, and this has long-term implications for wealth distribution and social mobility. It’s a shift that’s affecting the entire country, but in states like California, the housing crisis is especially pressing.
If we don’t start addressing these issues head-on, we’ll continue to see the divide grow between the haves and have-nots, between those who can afford to live and those who simply can’t. The gap is widening every day, and we need to do something about it before it’s too late.

 

The conversation began when the individual mentioned the property and remarked, "What will it take to secure this place?" He was particularly focused on finding a home for his daughter and son-in-law, who had fallen in love with it. You could see in his eyes that he was determined—he had done well financially and was ready to invest in the home that would allow his family to live close enough to him and the schools he valued for his future grandkids, even though they didn’t have children yet. He had a clear vision for the home, and he was ready to make it happen. His question—“What will it take?”—is a powerful one because it sets the tone for the entire deal.
At that moment, I knew exactly what my client was willing to pay, and I could tell it would be the high-end offer. He was ready to pay top dollar, and that would set a new pricing precedent for the area. My job, as the seller's representative, is to secure the best deal, which often means the highest possible price. In this case, everything else—terms, contingencies—would be secondary to price.
This situation highlights a broader trend where parents and even grandparents are stepping in to help their younger family members purchase homes. In today's market, it has become increasingly difficult for younger couples to afford homes on their own. As a result, we’re seeing a dynamic shift where parents are buying homes for their children, or at least making significant contributions. This is often the case with wealthier families who can either pay cash for the home or take out a line of credit against their assets. They might borrow the money to pay for the home and then refinance it a month later to get their child on a manageable mortgage.
For instance, imagine a parent asks their 25-year-old child how much mortgage they could afford. The child might say, “I can afford up to $2,000 a month.” A mortgage payment of $2,000 would generally cover a home worth around $375,000. However, if the desired home costs $1.075 million, the parents would need to bridge the $700,000 gap in order to make up the difference, so the child could still have a mortgage payment that’s comfortable. This often results in parents giving their children large sums of money to cover the down payment—sometimes even $700,000 or more.
Parents also have to decide whether they view the financial assistance as a loan to be paid back or as a gift. In some cases, siblings might receive different amounts, leading to complex family dynamics and discussions about fairness. These types of arrangements are becoming more common in today’s housing market, especially in competitive areas.
This is a far cry from how things were when many of us were buying homes. For example, I purchased my first home in Rancho Santa Margarita in 1989. Back then, homes were much more affordable. My wife Kathy and I were married at 23, and we found a three-bedroom, two-bath home for $222,000. I was just starting out with an income of around $30,000 per year, while Kathy earned about $25,000 working for Nordstrom. We managed to scrape together enough for a 10% down payment with some help from my grandfather, who lent me the remaining amount at 10% interest. It was a stretch, but we managed to make it work. In hindsight, the price of that home was approximately four times our combined income, which is much more manageable compared to the current market.
Today, that dynamic has changed dramatically. Home prices have soared, and younger buyers now face challenges that we didn’t experience. Even the mortgage rates back then were better compared to what many buyers are facing today, despite having a more favorable income-to-home price ratio.
Now, new developments and suburban growth are reshaping the market. Developers release properties in phases, and while this can sometimes keep prices in check, it also means there is less room for negotiation. If a homebuilder has released 50 homes at a certain price, they can’t suddenly increase the price of the remaining homes without upsetting buyers who already have contracts. In California, for instance, development projects are starting to include provisions for splitting larger properties or adding secondary homes to meet the growing demand. However, there’s still a significant housing shortfall of 3.1 million units in the state, exacerbating the problem.
If this trend continues, we may see a further decline in homeownership rates, as homes will become increasingly out of reach for many buyers. Homeownership affordability is not improving; it’s worsening.
Interestingly, more companies and investors are now purchasing homes, further complicating the market for individual buyers. This adds another layer of complexity to an already challenging landscape.

Many people have little to no connection to real estate but still want to be involved. These individuals, often corporate entities, are buying up residential homes, creating competition for what used to be the domain of small, family-run businesses. In this new landscape, you have investors, builders, families in need of housing, and large companies all vying for the same properties.
It’s striking when you hear about a company that traditionally manufactures butter or food products suddenly buying up dozens of homes in a particular neighborhood. Why would they do that? The answer lies in the appeal of real estate’s profit potential. For companies facing flat margins in their primary businesses, real estate can provide a much-needed boost. Executives, many of whom are homeowners themselves, understand the value of owning property, and they see an opportunity to capitalize on it.
These companies buy homes, rent them out, and sit on them until property values rise. Once the market is favorable, they sell, helping to bolster their financials and improve margins for shareholders. It’s a smart financial model that enables companies to offset stagnation in other areas of their business.
But what does this mean for California, where skyrocketing real estate prices are already putting strain on many families? As companies continue to invest in real estate, the consequences are already visible. More people are being pushed into motor homes, and in some areas, creative housing solutions like tents or temporary structures are being used to deal with the rising cost of living. It’s clear that housing is becoming unaffordable for many, especially for laborers who can't afford to live close to where they work.
Small businesses, which make up around 62% of the U.S. economy, are feeling the pinch as well. For example, workers in industries like agriculture, landscaping, or teaching, are struggling to make ends meet in an increasingly expensive environment. If someone leaves California for just a year, their chances of returning to the state at an affordable price are slim. By the time they come back, home prices have soared, and they’re left with fewer options at a much higher cost of living.
In the midst of all this, companies are making moves that directly impact the lives of everyday people. While they grow their portfolios, the average Californian is grappling with how to survive, how to raise their children, and how to stay in the state they once called home. The situation is becoming increasingly dire, with many forced to make difficult decisions about their futures.
This issue, however, is not just about homeownership or the housing crisis; it’s also about the people who make up the fabric of communities and how they will continue to survive and thrive in an increasingly expensive environment.

There are moments when you look at someone and think, "Wow, we really look alike." That happened to me once, and it stuck with me. I had this vivid image in my mind of walking down a busy San Francisco sidewalk on a Saturday morning, people rushing past in all directions, when I saw a person lying in the middle of the sidewalk—sleeping, I assumed. But what struck me was how no one seemed to notice or care. People just walked right over that body, as if it was invisible. It felt like that person was a ghost.
That moment really hit me, and I couldn't shake it. I’ve always had a strong faith, and turning 60 made me reflect on what I want to do with the rest of my life. Now, I feel called to serve others, especially those who are in need. I’ve started by feeding people every Friday, and I'm working on initiatives like "spa days" for the homeless. There are so many ideas in my head right now, and I'm just taking it step by step, hoping that each small act will make a difference.
Through my work, I've learned so much about the struggles families face, and I think Californians, and the wider society, could benefit from this perspective. Life here is expensive, and the pressure to keep up with the high cost of living is overwhelming. It’s easy to get caught up in just surviving—focusing on work, family, and basic needs, while everything else feels secondary. But we need more compassion. It's easy to write a check and say, "Get them off the streets," but that doesn't address the root of the problem.
I often hear complaints about San Francisco—how it's been overrun with homelessness, with people saying things like, "If you go to San Francisco, you might step over human feces, or trip over someone." It's not just happening in San Francisco though; it’s spreading to downtown Los Angeles, San Diego, and even smaller towns. What’s concerning is how cities are dealing with the issue. Take Mountain View, for example. They've created a grid system with color-coded parking spaces for motor homes—basically areas where people living in RVs can park legally. At first, it was fine, but now, there are more people living in RVs than the city can accommodate. So, they quietly limit parking spots, gradually shrinking the areas available for people who are already struggling. This only adds to the problem—if people can’t find a place to park, where do they go?
As the housing situation worsens, more people are forced into even worse conditions. They lose their jobs, their confidence plummets, and their physical and mental health deteriorates. I’ve seen it firsthand: as time passes, people begin to neglect their appearance. They can’t afford basic grooming, and their physical decline mirrors their emotional struggle. This is when the mental health challenges begin to set in.
That’s why I’m working on initiatives like the "spa day" in Mountain View, where we offer haircuts and personal care to the homeless. The transformation that happens when someone sees themselves cleaned up is incredible. It’s not just about looking good; it’s about restoring their sense of self-worth. When someone who’s been homeless for years looks in the mirror and sees a version of themselves they remember, it sparks something in them. Often, they reconnect with their family, or they find the courage to apply for a job. Many won’t even try to get a job, thinking they’ve been forgotten by society. They feel like they don’t deserve it. But when they experience that first step—looking better, feeling better—it can turn everything around.
But it's a tough road. As people fall deeper into homelessness, the challenges multiply. Drug use, mental health issues, and despair take over. It’s easy for them to give up. That’s why I believe we need to address the housing crisis in a way that goes beyond just building more shelters. We need to find ways to create jobs and affordable housing, so people can rebuild their lives.
In my opinion, fixing the housing crisis starts with three key elements:

1. Affordable Housing: We need to build housing that’s truly affordable for the people who need it the most—teachers, service workers, and others who can’t afford to live in the cities where they work.
2. Job Creation: We need to create jobs that not only pay well enough for people to support themselves but also offer a pathway out of poverty.
3. Mental Health Support: People who are homeless need counseling and mental health support. We need programs that help them rebuild their confidence, set goals, and develop skills that will help them reenter the workforce.

The solution isn’t simple. It requires the cooperation of city governments, employers, and developers. It also requires a shift in how we think about homelessness—not as an issue to ignore, but as a crisis that demands compassion and action. We need to build more than just houses; we need to build communities, with empathy, opportunity, and resources for everyone.
In the end, the key is to invest in people. They are not just numbers; they are individuals with potential, and with the right support, they can overcome their challenges. If we do this right, we can turn things around and build a better future for everyone.

 

 

 

'09 |Income levels are considered
how much loan a family can handle

The two types of variables which affect residential real estate prices are macro forces and micro forces. Micro forces include state and municipal zoning, neighborhood features (like quality of schools, hospitals), local economic strength, and the condition of the property itself. Macro forces include economic strength (the business cycle), mortgage interest rates, federal taxes and demographics.

Income levels are considered as the biggest factor which affects home pricese...
Dr. Tom Mayor 

Income levels are considered as the biggest factor which affects home prices as the incomes of potential buyers limits the rise in home prices. More than 80 percent of the total number of homes sold are purchased with a loan so the ability to pay back the loan, borrow money and also the cost of getting a loan are the major factors which limit the rise in home prices. They start getting resistance when the prices reach the levels where potential buyers are not able to reach. On an average, in US the ratio is a home’s value is 2-4 times income levels.
A term known as ‘front-end’ ratio (income/mortgage payments) is used by responsible lenders to find out how much loan a family or an individual can safely handle and pay back. Generally, the front-end ratio is calculated as maximum of 28% of a borrower’s total monthly income which can be allocated to housing expenses including the payment of the mortgage or the loan, taxes like insurance and property etc. For example, if a borrower has a monthly income of $5000 then he can allocate 28% of $5000 that is, $1400 for housing expenses. After subtracting $200 for taxes, $1200 would be used for mortgage payments. According to lenders, $200,000 loan can be supported by $1200.

Factors influencing real estate prices.

Signs that a recovery in real estate prices is on the way.

'10 |Lender Foreclosure Auction Decline when other factors get slowed down

Real estate agents have been hunting for new houses in recent past months as reported by a source, but still according to the data, closings have gone down by double digits as compared to the figures a year ago.

Signs that a recovery in realestate prices is on the way.

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