Future Outlook for California Real Estate: Projections and Trends ’25-’26
California Housing Market Trends in 2025
The California housing market is experiencing a shift in 2025, moving towards moderate price growth and increased sales. According to the California Association of Realtors (C.A.R.), existing single-family home sales are projected to increase by 10.5% in 2025, reaching 304,400 units [1].
Several key factors are contributing to this growth. Lower interest rates, improved housing inventory, returning buyers and sellers, and continued demand are all playing a part in this positive momentum [1]. The average 30-year fixed-rate mortgage is projected to decline from 6.6% in 2024 to 5.9% in 2025 [2].
This easing of mortgage rates and boost in available homes is leading to the highest inventory levels in more than five years by mid-2025, which benefits buyers by providing more home choices and tempering overly aggressive bidding [2]. However, monthly payments for a typical mid-tier home remain extremely high, exceeding $5,900 per month in June 2025, marking an 82% rise since early 2020 [3].
Regional differences are prominent in the California housing market. While some parts of California, such as the Far North, Central Coast, and Southern California, are experiencing sales growth, others, like the San Francisco Bay Area and Central Valley, saw slight increases, and the Central Valley had a sales decline [1]. Areas like the Bay Area—particularly the South Bay—are benefiting from tech and AI-driven wealth, with some of the strongest and most expensive home sales, including a surge in luxury home transactions over $5 million [4].
However, some areas affected by wildfires, such as Altadena and Pacific Palisades, are facing unique challenges. In the six months since the January Southern California wildfires, Altadena experienced a 54.8% decline in home sales on a year-to-date basis, and Pacific Palisades saw an 83.8% contraction in market activity [5]. The median price of a home in Altadena decreased significantly, falling by 39.1% from $1,425,000 in 2024 to $867,500 in 2025, and Pacific Palisades also saw substantial price erosion, with its median home price declining by 23.7% from $3,310,000 in 2024 to $2,525,000 in 2025 [5].
California's nonfarm job growth is expected to decline to 1.1% in 2025 from 1.5% in 2024. The U.S. GDP is projected to slow to 1.1% in 2025, compared to 1.9% in 2024. Despite these challenges, California's unemployment rate is anticipated to tick up to 5.6% in 2025, compared to a projected 5.4% in 2024 [6].
Affordability remains a significant challenge in the California housing market, with the housing affordability index projected to stay at 16%, meaning that the median-priced home is only affordable to 16% of households [6]. Although housing supply will still be below historical averages, there's an expectation of a moderate increase in active listings [7].
In June 2025, California home sales bounced back, reaching a seasonally adjusted annualized rate of 264,260, a 4.0% increase from May [8]. The California median home price is predicted to increase by 4.6% to reach $909,400 in 2025 [2].
In summary, the California housing market's near-future forecast points to stable but elevated prices with higher sales volumes in 2025, facilitated by increased inventory and lower interest rates, while affordability challenges persist and vary by region, especially in tech-driven coastal metros [1][2][3][4].
References: 1. C.A.R. Housing Market Forecast 2. C.A.R. Housing Market Trends 3. C.A.R. Housing Affordability Report 4. San Francisco Business Times 5. Los Angeles Times 6. California Economic Forecast 7. C.A.R. Housing Market Trends 8. C.A.R. Housing Market Trends
- The California Association of Realtors (C.A.R.) predicts a 10.5% increase in existing single-family home sales in 2025, due in part to the decline in average 30-year fixed-rate mortgage rates.
- Lower interest rates and increased housing inventory are leading to higher inventory levels in the California housing market, benefiting buyers by providing more home choices.
- However, monthly payments for a typical mid-tier home remain extremely high in June 2025, despite the easing of mortgage rates and increased inventory.
- Areas affected by wildfires, such as Altadena and Pacific Palisades, are facing unique challenges in the California housing market, with significant declines in home sales and median home prices compared to 2024.
