California Housing Market Predictions for Next 2 Years: 2025-2026

Is the California dream still affordable? That's the question on everyone's mind, especially if you're thinking about buying or selling a home here. Looking ahead, the California housing market forecast for the next two years suggests a mixed bag, with some areas seeing price increases, while others might experience a slight dip. The data points toward a cooling trend rather than a full-blown crash, with most of the state experiencing moderate growth. Buckle up as we delve into what experts are predicting and I give you my take on the matter.

California Housing Market Predictions for Next 2 Years: 2025-2026

Good News on the Horizon?

When the California Association of REALTORS® (C.A.R.) released its 2025 California Housing Market Forecast, it offered a glimmer of hope. They predict that both home sales and prices will go up in 2025. Why? Lower interest rates and more homes for sale. Sounds good, right?

• More Homes Sold: C.A.R. thinks we'll see about 304,400 homes sold in 2025. That's a 10.5% jump from what they expect in 2024!
• Higher Prices (But Slower Growth): The median home price in California is predicted to hit $909,400 in 2025. That's a 4.6% increase from the expected 2024 median price of $869,500. While prices are still going up, the pace of increase is slowing down, which is good news for buyers.

Why the Change? The “Lock-In” Effect and Interest Rates

One big reason for this shift is something called the “lock-in” effect. Many homeowners have super-low interest rates on their current mortgages. They don't want to sell and buy a new house with a much higher interest rate. This has kept a lot of homes off the market.

But guess what? Interest rates are expected to go down a bit in 2025. This should loosen the “lock-in” effect. More homeowners will feel comfortable selling, which means more homes for sale! And lower interest rates also make it easier for people to buy.

C.A.R. thinks the average 30-year fixed mortgage interest rate will drop from 6.6% in 2024 to 5.9% in 2025. That's still higher than pre-pandemic levels, but it's a move in the right direction. This, combined with increased inventory, is what's driving the positive California housing market forecast for 2025.

What About Affordability?

Okay, so more homes for sale and lower interest rates sound great. But what about affordability? Can people actually afford these homes? C.A.R.'s forecast suggests that housing affordability will likely stay around 16% in both 2024 and 2025. This means about 16% of California households will be able to afford a median-priced home. This isn't great, but it's not getting worse either.

Here’s a handy table showing C.A.R.'s predictions:

Metric	2018	2019	2020	2021	2022	2023	2024 (Projected)	2025 (Forecast)
SFH Resales (000s)	402.6	398	411.9	444.5	343	257.9	275.4	304.4
% Change	-5.2%	-1.2%	3.5%	7.9%	-22.9%	-24.8%	6.8%	10.5%
Median Price ($000s)	$569.5	$592.4	$659.4	$784.3	$822.3	$814.0	$869.5	$909.4
% Change	5.9%	4%	11.3%	18.9%	4.5%	-1%	6.8%	4.6%
Housing Affordability Index	28%	31%	32%	26%	19%	17%	16%	16%
30-Yr FRM	4.50%	3.90%	3.10%	3.00%	5.30%	6.80%	6.60%	5.90%

What Does This Mean for You?

If you're thinking about buying a home in California in 2025, the California housing market forecast 2025 suggests it might be a slightly better time than 2024. Lower interest rates and more homes for sale could give you more options.

If you're a seller, you might also benefit from the increased activity and slightly higher prices.

But remember, this is just a forecast. Things can change. Keep an eye on the economy and interest rates. Talk to a real estate professional in your area. They can give you the best advice for your specific situation.

Home Price Predictions for California Regions in 2025

Zillow, a reputable source for real estate data, has provided some interesting projections for various metropolitan areas in California. These forecasts, based on market trends until the end of October 2024, give us a good idea of where the California real estate market might be headed.

Here's a breakdown, focusing on price changes by percentage for key dates, and some easy-to-understand interpretations of the table below:

California Metro Area	Forecasted Price Change by Nov 30, 2024	Forecasted Price Change by Jan 31, 2025	Forecasted Price Change by Oct 31, 2025
Los Angeles	0.2%	0.4%	2.3%
San Francisco	-0.4%	-1.3%	-2.3%
Riverside	0.0%	0.0%	2.9%
San Diego	-0.2%	-0.7%	2.3%
Sacramento	-0.1%	-0.6%	0.0%
San Jose	0.2%	-0.5%	0.3%
Fresno	0.0%	0.0%	1.8%
Bakersfield	0.2%	0.4%	3.2%
Oxnard	-0.2%	-0.7%	0.9%
Stockton	-0.1%	-0.6%	0.4%
Modesto	-0.1%	-0.3%	1.3%
Santa Rosa	-0.3%	-0.9%	-1.6%
Visalia	0.1%	0.0%	2.1%
Vallejo	-0.2%	-0.6%	-0.5%
Santa Maria	-0.1%	-0.4%	3.1%
Salinas	-0.1%	-0.4%	1.3%
San Luis Obispo	-0.2%	-0.6%	1.1%
Merced	-0.1%	-0.3%	1.5%
Santa Cruz	-0.4%	-1.3%	-0.4%
Chico	-0.1%	-0.5%	-2.1%
Redding	0.0%	-0.2%	0.2%
El Centro	0.3%	0.3%	1.9%
Yuba City	-0.1%	-0.2%	1.2%
Madera	0.1%	0.3%	2.5%
Hanford	0.2%	0.3%	2.4%
Napa	-0.5%	-1.2%	-1.3%
Eureka	-0.4%	-1.4%	-3.4%
Truckee	-0.2%	-0.9%	-0.9%
Ukiah	-0.6%	-2.2%	-5.8%
Clearlake	-0.3%	-1.0%	-2.2%
Red Bluff	-0.2%	-0.3%	-0.3%
Sonora	-0.3%	-1.4%	-1.8%
Susanville	-0.3%	-0.8%	-1.4%
Crescent City	0.5%	0.9%	1.3%

Key Takeaways from the Data:

• Mixed Bag: It’s clear that the California housing market isn’t moving in one direction. Some areas, like Bakersfield and Riverside, are expected to see solid growth, while others, such as San Francisco and Eureka, face potential price declines.
• Early 2025 dip: It appears that the beginning of 2025 may see a bit of a slowdown in prices, with most metro areas seeing either stagnant prices or slight dips. This is particularly true for places like San Francisco and the surrounding Bay Area.
• Later 2025 Rebound: The end of 2025, however, looks more optimistic. Most regions are predicted to recover and see moderate price increases. This suggests a market that might be pausing for a breather before picking up again.
• Bay Area Concerns: The Bay Area, especially cities like San Francisco, San Jose, and Napa, are showing signs of weakness. This could be due to high prices and a possible decrease in demand from the tech sector and people moving away from high-cost areas.
• Growth in Southern California and Central Valley: On the other hand, Southern California and the Central Valley, with cities like Bakersfield, Riverside, and Santa Maria, are expected to do well, possibly due to relatively more affordable prices compared to coastal areas.

Will California Home Prices Drop or Crash?

The big question is: will there be a price drop or, worse, a crash? Based on the data and my own analysis, here's my take:

• No Crash Likely: I don’t see a major housing market crash on the horizon for California. The predictions point to market corrections and adjustments rather than a catastrophic collapse. The fundamentals of the California housing market, such as high demand and limited supply, still remain strong in many areas.
• Cooling, Not Crashing: While some areas might see price corrections, especially in early 2025, the overall trend seems to be one of a gradual slowing of growth. This means you're unlikely to see a massive drop in home values across the board.
• Location Matters: As always, real estate is local. What’s happening in San Francisco will be very different from what’s happening in Bakersfield. If you're thinking of buying or selling, pay close attention to your specific area’s trends.

My Personal Thoughts:

I've been watching the California real estate market for a long time, and one thing I've learned is that it’s resilient but unpredictable. Here are a few thoughts based on my understanding and experience:

• Interest Rates Play a Big Role: The Federal Reserve’s decisions about interest rates will significantly impact the market. Higher rates make mortgages more expensive, which can cool buyer demand. I’ll be keeping a close watch on how this develops.
• Tech Sector Impact: The tech industry in the Bay Area has a huge influence on the local housing market. Layoffs and shifts in the tech job market can cause fluctuations in housing demand. The Bay area has been on a roller coaster ride.
• Migration Patterns: Where people choose to move to and from will impact prices. Many people left San Francisco during the pandemic. If more people move away from high-cost areas, we may see a price adjustment in those regions.
• Affordability Issues: For many people, the high cost of homes in California is still a challenge. This may put a lid on future price rises. More affordable areas are likely to experience increased interest.
• Long Term Trends: It is very difficult to predict past 2 years, but the fundamental long term problem of lack of housing in California will continue to underpin the market. The long term outlook continues to be strong.

A Glimpse Into 2026

Predicting the California housing market in 2026 is more speculative, but based on what we’re seeing now, I expect:

• Continued Moderation: I believe 2026 will continue the trend of moderate growth in some areas and perhaps some slight price adjustments in others. The market should have stabilized by then.
• Regional Differences: The differences between different regions will become more pronounced. Areas that have corrected will start to recover. The central and southern regions will show the strongest growth.
• Supply and Demand Imbalance: The underlying imbalance between housing supply and demand will continue. This means that places with limited housing and continued interest will be more competitive.
• Economic Factors: The state of the economy will have a big impact. A strong job market and a stable economy will support housing growth.
• Slow and Steady: Don’t expect the kind of explosive growth we saw during the pandemic. Instead, we’ll likely see a slow and steady market that’s more balanced.

Final Thoughts

Navigating the California housing market forecast requires a careful approach. While some areas might see price corrections in the next couple of years, a significant crash is unlikely. Keep your eye on interest rates, local economic conditions, and regional trends. And remember, I am always here to give you my take on the matter, drawing on my experience and analysis. Whether you're looking to buy, sell, or invest, doing your research and having a clear plan is the key to succeeding in this dynamic market.