Median home value measures the midpoint of home values in a specific area. It is a key variable used in housing market analyses and economic studies to gauge the overall worth of residential properties. Unlike the “median sale price” variable, which reflects the prices of homes recently sold in the market, the median home value is derived from self-reported data collected by the American Community Survey (ACS). This means that the median home value includes not just the prices of recently sold homes, but also the estimated values of older homes that may not have been sold or evaluated in recent years. This approach provides a more stable and long-term view of home values within a community.

Median home value is an indicator of the general strength of the economy and the health of housing markets. When median home values are high or rising, it often reflects strong economic conditions, including job growth, higher income levels, and a robust demand for housing. Conversely, declining or stagnant median home values may signal economic downturns, increased unemployment, or a lack of demand in the housing market. Overall, home prices increased by approximately 30% from 2018 to 2023. Several factors influence home values, including the local economy, interest rates, housing supply, and the condition of the housing stock.

Prior to the 1970s and 80s, the typical “rule of thumb” was that house prices in a community should not be more than 2.5 times the income of its residents. However, this quickly changed. The first spike of housing prices could be attributed to the “baby boomer” generation reaching home-buying age, creating a seller’s market in the mid-1970s. The 1973 oil crisis also pushed buyers to pay higher prices in fear of increased inflation. In addition, two-income families were able to qualify for larger mortgage loans, due to more women in the workforce and federal bans on gender discrimination in loan and credit decisions. Proposition 13 then disincentivized new housing and slow-growth policies also became more popular; these policies resulted in a 3-5% increase in home prices in their respective communities. Single family zoning was also much preferred, and limited the growth of multifamily housing developments. 

Beyond Los Angeles, housing bubbles and the Great Recession played a pivotal role in increasing housing costs. Homebuyers were attracted to metropolitan areas, believing that land value would continue to increase. The 2020 COVID-19 pandemic has also further increased home prices, due to demands for housing space, a shortage of overall housing, and competition between individual buyers and large institutional investors. Investor purchases spiked considerably in 2021 following the pandemic – amounting to one in every six homes – but experienced a large plunge in 2022. Despite this volatility, investor purchases of homes rose by 3.4% while overall home purchases fell by 1.9% in 2024. In Los Angeles specifically, the overall share of investor home purchases is approximately 22%, and this number is growing. Investors are also responsible for purchasing up to 25% of the affordable housing stock, and affordable housing makes up half of investor purchases. However, it is currently unclear what the impact of this investor activity is on individual homebuyers.

Written by Caroline Ghanbary