California Housing Market: Trends and Forecast 2024-2025

The California housing market saw a rebound in October 2024, with both home sales and the median price showing increases compared to the previous month and the same time last year. This suggests that after a period of uncertainty, the market is starting to stabilize and potentially shift towards a more balanced state, potentially leaning towards a buyer's market in some areas.

While we've seen some positive signs, it's crucial to remember that the market can change quickly, and factors like interest rates and economic conditions could impact the future of the housing market. Let's dive deeper into the current trends to get a better understanding of what to expect in the coming months.

California Housing Market Trends in 2024

Home Sales

According to the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.), existing single-family home sales in California reached a seasonally adjusted annualized rate of 264,870 in October. This represents a 4.7% increase from September and a 9.5% increase compared to October 2023. This year-over-year growth is the fastest pace we've seen in 40 months.

This increase in home sales can be attributed to a few factors. Many homes that went pending in the previous months finally closed escrow in October. Also, with the Federal Reserve potentially cutting interest rates and the elections behind us, some buyers took advantage of the seasonal lull and purchased before the end of the year.

However, it's important to note that the increase in sales is partly due to the low sales base in 2023, which saw a decline of nearly 12% compared to 2022.

At the regional level, most major areas saw an increase in sales compared to the previous year. The San Francisco Bay Area saw the most significant increase at 16.2%. The Central Valley, Central Coast, and Southern California also experienced double-digit year-over-year growth. The only exception was the Far North region, which saw a 6.7% decrease.

The interactive chart above offers a comprehensive visual summary of key real estate metrics in California for July 2023 and July 2024.  To explore different metrics in the chart, hover over the bars to see specific data points like home sales, median home prices, days on the market, sales-price-to-list-price ratio, and price per square foot. You can click on the category names in the rectangles above to strike through and temporarily remove that metric from the chart. This allows you to focus on the remaining metrics for a clearer comparison.

Home Prices

The statewide median home price also saw a jump in October, reaching $888,740. This represents a 2.4% increase from September and a 5.8% increase from October 2023. It's the 16th consecutive month of year-over-year price increases, with October marking the biggest jump in the past three months.

Are Home Prices Dropping?

While we've seen year-over-year increases, it's important to understand that the pace of price growth is starting to moderate. The impact of higher-priced market segments on the statewide median price growth has become less significant in recent months. Sales in the sub-$500,000 market remain sluggish, and there's a possibility that home prices could soften in the coming months as we enter the traditional off-season. It's also worth noting that the Federal Reserve has been gradually reducing interest rates, and this could also influence the price trends.

Based on my experience and the trends I am observing, I believe there's a chance that the pace of price growth may start to decrease further in certain parts of the state. However, I do not anticipate a significant drop in home prices across the board in the near future. For now, year-over-year growth is likely to continue, but perhaps at a slower pace.

At the regional level, the Central Valley saw the largest year-over-year price increase at 5.7%, followed by Southern California at 5.5%. The San Francisco Bay Area and the Far North also saw increases, while the Central Coast was the only region to experience a year-over-year price decrease.

Housing Supply

The California housing market‘s housing supply situation is complex and varies across regions. The statewide Unsold Inventory Index (UII), which measures the number of months it would take to sell the current inventory at the current sales pace, was 3.1 months in October, down from 3.6 months in September but up from 2.7 months in October 2023. This indicates that inventory is still slightly below a balanced market (considered to be around 4-6 months).

The total active listings at the state level increased 31.5% year-over-year. It's the ninth consecutive annual sales gain and the eighth straight double-digit increase, showing that the supply is improving gradually. However, with the market entering the holiday season and mortgage rates potentially impacting future sales, it's expected that inventory could continue to build up through the fall and winter months.

At the county level, most counties saw an increase in properties on the market from a year ago. Calaveras County saw the biggest year-over-year jump at 76.8%, followed by Contra Costa and San Joaquin counties. San Francisco, San Mateo, and Madera counties were the only counties that did not see an increase in total active listings, and in fact, saw a decrease from a year ago.

Market Trends

Several key trends are shaping the California housing market in 2024:

• Interest Rate Fluctuations: As mentioned earlier, interest rates have been a significant factor impacting the market. While interest rates have come down from the peak levels of the previous year, they're still higher than what we've seen in recent history. This may slow down buyer activity somewhat, especially in the coming months.
• Pending Sales: Pending sales rose by double digits in October, suggesting a positive outlook for closed sales in the coming months. This indicates that buyers are still interested in purchasing homes, and the market is not completely stagnant.
• Sales Mix: The sales mix continues to be an important factor influencing the median price growth. Sales in higher-priced segments have slowed down, while sales in the lower-priced segments have been lagging. This moderation in the median price growth is likely to continue if sales in higher-priced segments remain slow.
• Seasonal Trends: As we move into the traditional off-season for the real estate market, we might see a natural slowdown in home sales and potentially some softening of prices. But, it's important to note that this is typically a seasonal pattern, and the market is anticipated to pick up again in the spring.
• Economic Outlook: The overall economic health of the state and the nation continues to play a role in housing market trends. Changes in employment rates, inflation, and consumer confidence can all influence buyer and seller decisions.

The current trends indicate that the California housing market is in a state of transition. While we saw a rebound in October, it's important to approach the market with a balanced perspective.

Is It a Buyer's or Seller's Housing Market?

The current California housing market is arguably transitioning from a seller's market to a more balanced state, possibly leaning towards a buyer's market in some areas. Based on the data, it's clear that buyers have a bit more leverage than they did a year ago. This is because of increased inventory and a slight moderation in home price growth.

However, it's still not a full-fledged buyer's market. Demand remains, and prices are still higher than they were in the past. Moreover, the inventory levels are still below what is considered a balanced market in many areas. It's likely that the California housing market will continue to be fairly competitive, but buyers have more options and negotiating power now.

Area	Market Trend	Explanation
San Francisco Bay	Balanced/Buyer's	Increased inventory, moderate price growth, competition still present.
Southern California	Balanced	Inventory increasing, price growth moderate, competitive in certain submarkets.
Central Valley	Seller's	Lower inventory in some areas, price growth higher, competition still strong.
Central Coast	Buyer's	Increased inventory, price decline in some areas, less competitive than other areas.
Inland Empire	Balanced	Inventory increasing, price growth moderate, competition in specific submarkets.

Property Tax Rates in the California

California's property tax landscape is unique, shaped by Proposition 13 and subsequent legislation. This system, while aiming to protect homeowners from volatile market fluctuations, can be complex to understand.

Let's break it down:

Firstly, California's property tax rate is capped at 1% of the assessed value of your property. This assessed value, however, is not necessarily the market value. When you buy a home in California, the purchase price becomes the initial assessed value. From then on, your assessed value can only increase by a maximum of 2% per year, regardless of how much your home's market value may rise. This 2% cap, thanks to Proposition 13, provides homeowners with a sense of predictability and protection from dramatic tax hikes.

However, this also means that homeowners who have lived in their homes for a long time might be paying significantly less in property taxes than newer homeowners with similar properties. This disparity in property tax burdens is a key point of discussion surrounding Proposition 13.

Beyond the 1% base rate, there are additional local taxes and bonds that are added to your property tax bill. These vary depending on your specific location and are used to fund local services like schools, parks, and libraries. Consequently, even though the base rate is fixed, your total property tax rate can fluctuate based on local needs and voter-approved initiatives.

Foreclosure Activity Across California – Midyear 2024

The recent data on foreclosure activity in California reveals significant challenges facing homeowners in the early part of 2024. With a total of 19,013 properties (ATTOM's Midyear 2024 Report) filing for foreclosure, the statistics indicate an ongoing struggle for many to keep up with mortgage payments, which can be attributed to various economic factors.

While this number reflects a serious situation, it represents only 0.13% of the overall housing units in the state. This relatively small percentage suggests that, although foreclosures are noteworthy, they are not yet overwhelming the larger housing market.

When examining the ratio of foreclosures to housing units, California sees approximately one foreclosure for every 759 housing units. This figure offers a glimpse into the current state of foreclosures within the broader context of the housing market, indicating that while a proportion of homeowners are facing significant difficulties, the majority are not currently affected.

However, the increase of 6.13% in foreclosure filings from January to June 2023 signals a troubling upward trend, suggesting that many homeowners may be experiencing economic distress. Furthermore, the substantial rise of 16.36% in foreclosure activity compared to the same period in 2022 underscores the persistent nature of these challenges, indicating that the factors contributing to increased foreclosures may be ongoing and multifaceted.

The implications of this increase in foreclosures are substantial, raising concerns about the overall economic health of households in California. Factors such as rising interest rates, shifts in the job market, and broader economic uncertainties could be putting additional strain on families, leading to difficulties in meeting mortgage obligations.

Overall, while the percentages and figures illustrate a concerning trend, they also highlight the critical need for intervention to protect vulnerable homeowners and sustain the housing market's vitality.

Why is the California Housing Market So Expensive?

We all know that California is the most expensive housing market in the country. Its reign as the most expensive housing market in the United States is a complex issue rooted in a confluence of factors that have built up over decades. While many point to the state's booming economy and desirable lifestyle, the reasons run far deeper.

A primary driver is the simple principle of supply and demand. California consistently ranks among the most populous states, attracting millions with its renowned climate, diverse culture, and ample job opportunities, particularly in high-paying sectors like technology and entertainment.

The state has more than 39 million residents as of 2022, constituting 11.7 percent of the U.S. population. This constant influx of new residents, coupled with a historically slow pace of housing construction, has created a significant imbalance, driving up prices as demand consistently outpaces supply.

This housing shortage is further exacerbated by stringent regulations and bureaucratic hurdles that make building new homes in California a costly and time-consuming endeavor. Zoning laws, environmental regulations, and lengthy permitting processes all contribute to delays and increased expenses for developers, costs which are ultimately passed on to buyers in the form of higher prices.

Beyond these fundamental factors, California's unique geography plays a role. Hemmed in by the Pacific Ocean to the west and mountain ranges to the east, the state faces natural limitations on its land available for development. This scarcity of buildable land, especially in desirable coastal areas, further intensifies competition and inflates prices.

Furthermore, California's robust economy, while attracting residents and driving up demand, also contributes to higher housing costs. High-paying industries and a thriving job market result in greater disposable income among residents, empowering them to afford more expensive homes and further fueling the upward pressure on prices.

This economic prosperity, while beneficial in many ways, unfortunately, creates a cycle where housing becomes increasingly inaccessible to those not earning top salaries.

Addressing California's housing crisis demands a multifaceted approach. Increasing supply through streamlined regulations and incentives for developers is crucial, as is exploring innovative housing solutions like increased density and more affordable housing options.

California Housing Market: What to Expect in the Second Half of 2024

1. Mortgage Rates Will Play a Key Role

• The recent dip in interest rates has been a breath of fresh air for buyers.
• While no one can predict the future with certainty, most experts believe rates will remain relatively stable for the rest of the year, hovering around the 6-7% range.
• This could incentivize more buyers to enter the market, especially if prices continue to moderate.

2. Inventory Will (Slowly) Improve

• The increase in active and new listings is a positive sign.
• However, don't expect a sudden surge in inventory. California has a chronic undersupply of housing, and it will take time to bridge the gap.

3. Price Growth Will Continue, But at a Slower Pace

• Double-digit price appreciation is likely a thing of the past (for now, at least).
• Most analysts predict more sustainable, single-digit price growth for the remainder of 2024.
• Don't expect a crash – the fundamentals of the California economy remain strong, supporting continued demand for housing.

4. Regional Variations Will Persist

• As always, California's vastness means there's no one-size-fits-all trend.
• The Bay Area, with its robust tech sector, will likely continue to see strong demand, even with some cooling.
• Coastal communities, highly desirable for their lifestyle, will also remain competitive.

5. Seasonal Slowdown

• The market will likely see a slowdown during the holiday season, and sales may decline as buyers take a break from their home searches.
• The California housing market will continue to experience differences across different regions.
• Some areas will be more competitive than others, depending on the inventory levels and buyer demand.

Factors Impacting the California Housing Market

Several factors have contributed to the challenges facing the California housing market. Here are some key factors that interact with each other, creating a complex and dynamic housing market in California.

1. High Demand and Limited Supply:

California has a high population density and strong economic growth, leading to a high demand for housing. However, there is a limited supply of available housing, particularly in desirable areas. This imbalance between supply and demand has driven up housing prices, making it difficult for many prospective buyers to afford homes.

2. Affordability Issues:

The high cost of housing in California has made homeownership less attainable for many residents. The median home price in the state is significantly higher than the national average. The combination of high home prices, rising interest rates, and stringent mortgage qualification rules has created affordability challenges for prospective buyers.

3. Strict Zoning and Land Use Regulations:

California has some of the most stringent zoning and land use regulations in the country. These regulations often restrict new construction and development, making it difficult to increase the housing supply to meet demand. This has resulted in a housing shortage and contributed to the rising prices.

4. Lack of Affordable Housing:

California faces a severe shortage of affordable housing, particularly in major cities. The cost of constructing affordable housing and the complex process of obtaining approvals and permits have hindered the development of affordable units. This has exacerbated the affordability crisis and led to a growing population of renters.

5. Economic Factors:

Economic conditions, such as job growth, wages, and interest rates, can significantly impact the housing market. Slowing economic growth or stagnant wages can dampen demand for housing, while rising interest rates can increase borrowing costs and dissuade potential buyers. These factors, in combination with high housing prices, have made it challenging for many Californians to enter the housing market.

6. Impact of Natural Disasters:

California is prone to natural disasters, including wildfires and earthquakes, which can damage or destroy homes and disrupt the housing market. Rebuilding efforts and insurance costs following these events can impact housing availability and affordability in affected areas.

7. Migration Patterns:

Migration patterns also play a role in the housing market. California has experienced both domestic and international migration, leading to increased demand for housing. However, in recent years, there has been a trend of net outmigration, with some residents leaving the state due to affordability concerns, congestion, and other factors. This can impact the supply and demand dynamics of the housing market.

California Housing Market Forecast 2025-2026

The California‘s housing market forecast for 2025 anticipates a rise in both home sales and prices, with the median home price potentially reaching $909,400. This positive outlook is fueled by a projected improvement in housing supply and a more favorable interest rate environment, attracting more buyers and sellers back to the market.

A Brighter Outlook for California's Housing Market

Over the past few years, the California housing market has been a roller coaster ride. We've seen dramatic swings in interest rates, a shortage of homes available for sale, and a significant impact on affordability. However, based on recent data and projections, it seems that we are entering a period of relative stability and potential growth.

The California Association of Realtors (C.A.R.) has released its 2025 forecast, and the general consensus is optimistic. They project that existing single-family home sales will increase by 10.5% in 2025, reaching 304,400 units. This increase is a significant shift from the recent downward trends caused by high-interest rates and limited inventory.

Factors Driving the California Housing Market Forecast 2025

Several key factors are contributing to this projected growth in the California housing market:

• Lower Interest Rates: The forecast predicts that the average 30-year fixed-rate mortgage will decline from 6.6% in 2024 to 5.9% in 2025. This reduction in borrowing costs will make it easier for buyers to qualify for a mortgage and could spark increased demand. I feel it's a great opportunity for first-time homebuyers to enter the market as it will bring the rates closer to pre-pandemic levels.
• Improved Housing Inventory: Although the housing supply will still be below historical averages, there's an expectation of a moderate increase in active listings. Homeowners who were hesitant to sell due to the “lock-in effect” (when homeowners are hesitant to sell due to existing low interest rates) may be more inclined to list their homes as interest rates decrease and offer more selling flexibility.
• Returning Buyers and Sellers: The combined effect of lower interest rates and a less restrictive inventory situation will likely lead to increased activity from both buyers and sellers.
• Continued Demand: While the rate of price growth is projected to moderate, the demand for housing in California remains high. This strong demand, coupled with limited inventory, will continue to push prices upward.

The California Median Home Price Forecast

The C.A.R. forecast predicts the California median home price will increase by 4.6% to reach $909,400 in 2025. This is following a projected 6.8% increase in 2024 to $869,500 from the 2023 level of $814,000. While this signifies continued price growth, it's important to note that the pace of this growth is anticipated to be slower than in recent years.

My personal take on this is that the housing shortage will continue to impact affordability, even with the predicted increase in inventory. This continued shortage creates a competitive environment that will keep prices elevated in the majority of California's cities.

Housing Affordability: A Persistent Challenge

Housing affordability is a crucial issue for California residents, and the forecast suggests that it will remain a concern in 2025. The affordability index is projected to stay at 16%, meaning that the median-priced home is only affordable to 16% of households. It's a concern that needs to be addressed.

Economic Outlook and Impact on the California Housing Market

The California housing market is not isolated from broader economic trends. The forecast anticipates a slight slowdown in the U.S. and California economies in 2025.

• GDP Growth: The U.S. GDP is projected to slow to 1.1% in 2025, compared to 1.9% in 2024.
• Job Growth: California's nonfarm job growth is expected to decline to 1.1% in 2025 from 1.5% in 2024.
• Unemployment Rate: California's unemployment rate is anticipated to tick up to 5.6% in 2025, compared to a projected 5.4% in 2024.

However, the economic outlook is still considered relatively healthy, which should provide support to the housing market.

California Housing Market Forecast 2025: Historical Data

Here is a table that outlines the key metrics of the California housing market over the past few years and the projections for the coming years.

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

The California housing market forecast for 2025 indicates a potential rebound in both sales and prices. The projected improvement in inventory and lower interest rates is likely to attract more buyers and sellers. While the pace of price growth is expected to slow down, the underlying demand and limited supply conditions will likely continue to put upward pressure on home prices.

I believe that 2025 could present both challenges and opportunities for those looking to buy or sell in the California housing market. It's crucial to stay informed about current market conditions and to consult with real estate professionals to make well-informed decisions.

Should You Buy a House in California in 2025?

California's sunshine and laid-back lifestyle lock in many a homebuyer's sights. But is it a smart investment right now? Let's crunch the numbers and explore the current California housing market to help you decide if this is the golden moment to make your move.

Market on the Move: Boom or Bust?

California's housing market has a well-deserved reputation for soaring prices. The past decade has seen impressive appreciation, with some areas experiencing double-digit growth. However, the recent quarters have shown a shift. The breakneck pace has cooled, with some regions even experiencing slight dips. This could be a sign of a long-awaited correction or simply a temporary adjustment.

Numbers to Know: Crunch Time

So, what do the numbers tell us? Here's a reality check: while the recent price hikes may have eased, California homes are still expensive. The statewide median price recently hit a record high of over $900,000. Couple that with rising interest rates, and monthly mortgage payments can feel like a hefty weight on your wallet.

Beyond the Numbers: Considering Your Needs

The decision to buy a house in California goes beyond cold, hard numbers. It's about your long-term goals and financial health. Here are some key questions to ask yourself:

• Are you in it for the long haul? California real estate has historically been a good long-term investment. If you plan to stay put for at least five to seven years, you'll weather any market fluctuations and likely see your home value appreciate.
• Can you handle the upfront costs? Don't forget about the down payment, closing costs, and potential repairs. Having a healthy financial buffer will ease the initial strain.
• Is your job stable? Job security is crucial, especially in a state with a higher cost of living.

A Competitive Market: Be Prepared

California's housing market is competitive, especially in desirable locations. Inventory remains tight, so be prepared to act fast and make competitive offers. Having a strong pre-approval from a reputable lender will put you ahead of the pack.

The California housing market has its complexities. Teaming up with a qualified real estate agent who understands the local market nuances is wise. They can guide you through the process, negotiate on your behalf, and help you find the perfect place that fits your budget and lifestyle.

The Verdict: It Depends

There's no one-size-fits-all answer to the California housing question. If you've done your research, understand the market conditions, and are financially prepared, buying a house in California could be a great decision. But remember, it's a significant investment, and it's wise to approach it with both eyes open.