Will Housing Prices Drop in 2025 in California?

Will Housing Prices Drop in 2025 in California? Okay, let’s get straight to the point because I know you’re here for answers. The short answer is: it’s complicated. While some areas in California might see a slight dip in housing prices in early 2025, a significant, across-the-board crash is unlikely based on the latest data.

It's more like a mixed bag, with some areas projected to increase in value and others to decrease. Now, let's dive deeper into the details, and I'll share my thoughts on what this all means for you, whether you're looking to buy, sell, or just curious about the California real estate market.

Will Housing Prices Drop in 2025 in California?

Why is Everyone So Obsessed with California Housing? I get it. California's housing market is like a soap opera – always dramatic, always unpredictable, and everyone has an opinion. And for good reason! California's real estate is notoriously expensive, and it impacts so many people's lives, whether they're dreaming of buying their first home, looking to move up, or trying to navigate the complexities of the rental market. I, like many others, have experienced the highs and lows of the market firsthand, and that’s why I try to stay informed.

The allure of California – the sunshine, the beaches, the tech jobs – fuels a lot of the demand. But that demand comes with a price tag, and lately, that price tag has felt pretty hefty. We’ve seen a period of rapid appreciation, and it’s natural to wonder if the bubble will burst. That brings us back to the big question: will prices actually drop in 2025?

What's Happening with California Housing Right Now?

Before we look ahead to 2025, it’s useful to understand where we are right now, in late 2024. Let’s take a look at some key data points from Zillow to give us an idea of what’s happening across the state:

• Average Home Value: The average home in California is worth around $778,355. That's a hefty price tag!
• Yearly Appreciation: Prices have gone up by 3.3% over the past year. This shows the market is still appreciating, just at a lower rate than previously seen.
• Speed of Sales: Homes are going to pending in about 22 days. This means there is still a lot of movement in the market.
• For Sale Inventory: There are 81,089 homes for sale. This gives us an idea of how many homes are available at any given time.
• New Listings: About 23,679 homes were listed for sale in November.
• Median Sale to List Ratio: The median sale to list ratio was 1.000. This suggests that, on average, homes are selling at their asking price.
• Median Sale Price: The median price of homes sold was $727,000. This is the actual price people are paying for homes.
• Median List Price: The median listing price was $742,850. This shows us what sellers are asking for.
• Sales Over List Price: A significant 43.7% of homes are selling for more than their listing price.
• Sales Under List Price: Still, a hefty 41.6% of homes are selling below their listing price.

Based on this, it looks like things are still active, and there's definitely a mix of homes selling both above and below the asking price. This tells me we're not in a straightforward seller's market or a complete buyer's market but a more complex situation.

Projected Housing Price Changes: A Region-by-Region Look

Now for the fun part: what the experts predict. Zillow has provided some interesting data on projected price changes across various metropolitan statistical areas (MSAs) in California. This is where things get really interesting because we're not talking about a uniform statewide prediction. Some regions are expected to see growth while others are projected to experience a decline. Here's a breakdown of some key areas:

Region	November 30, 2024	January 31, 2025	October 31, 2025
Los Angeles, CA	0.2%	0.4%	2.3%
San Francisco, CA	-0.4%	-1.3%	-2.3%
Riverside, CA	0%	0%	2.9%
San Diego, CA	-0.2%	-0.7%	2.3%
Sacramento, CA	-0.1%	-0.6%	0%
San Jose, CA	0.2%	-0.5%	0.3%
Fresno, CA	0%	0%	1.8%
Bakersfield, CA	0.2%	0.4%	3.2%
Oxnard, CA	-0.2%	-0.7%	0.9%
Stockton, CA	-0.1%	-0.6%	0.4%
Modesto, CA	-0.1%	-0.3%	1.3%
Santa Rosa, CA	-0.3%	-0.9%	-1.6%
Visalia, CA	0.1%	0%	2.1%
Vallejo, CA	-0.2%	-0.6%	-0.5%
Santa Maria, CA	-0.1%	-0.4%	3.1%
Salinas, CA	-0.1%	-0.4%	1.3%
San Luis Obispo, CA	-0.2%	-0.6%	1.1%
Merced, CA	-0.1%	-0.3%	1.5%
Santa Cruz, CA	-0.4%	-1.3%	-0.4%
Chico, CA	-0.1%	-0.5%	-2.1%
Redding, CA	0%	-0.2%	0.2%
El Centro, CA	0.3%	0.3%	1.9%
Yuba City, CA	-0.1%	-0.2%	1.2%
Madera, CA	0.1%	0.3%	2.5%
Hanford, CA	0.2%	0.3%	2.4%
Napa, CA	-0.5%	-1.2%	-1.3%
Eureka, CA	-0.4%	-1.4%	-3.4%
Truckee, CA	-0.2%	-0.9%	-0.9%
Ukiah, CA	-0.6%	-2.2%	-5.8%
Clearlake, CA	-0.3%	-1%	-2.2%
Red Bluff, CA	-0.2%	-0.3%	-0.3%
Sonora, CA	-0.3%	-1.4%	-1.8%
Susanville, CA	-0.3%	-0.8%	-1.4%
Crescent City, CA	0.5%	0.9%	1.3%

Graphs Showing Projected Home Price Gains and Drops

 

What Does This Data Tell Me?

Okay, let's break this down. It's clear that not all of California is behaving the same way. Here are a few of my observations and personal opinions:

• Early 2025 Weakness: Many areas, including major cities like San Francisco, San Diego, and even parts of the Bay Area, are projected to see price declines in the early months of 2025. This might be a reflection of the typical seasonal slowdown, but it's definitely something to watch. Personally, I think a lot of folks are just taking a breather after the intense activity in the last few years, and sellers might be more willing to negotiate.
• Mid-to-Late 2025 Potential Rebound: Interestingly, a lot of these same areas are projected to rebound and even experience growth by the end of 2025. This points towards a potential for a more active buying season later in the year. This also suggests to me that any early dips might be temporary and could even represent a buying opportunity for some.
• Regional Variations: Look at the difference between Bakersfield (projected to increase by 3.2%) and Ukiah (projected to decline by 5.8%!). It's a classic example of “location, location, location.” This underscores that the California market isn't a single entity. Each local market has its own dynamics, influenced by factors like job growth, local economy, and the availability of housing.
• Smaller Cities: I'm also seeing that some smaller cities and more rural areas are showing significant variance in their projected performance. This highlights the need to pay close attention to individual areas before assuming a statewide trend.

Why Might Housing Prices Drop (or Not)?

There are several factors that could influence whether housing prices drop in 2025. Here's a look at some of the key ones:

• Interest Rates: This is a big one. Higher interest rates make mortgages more expensive, which can dampen demand and cool down the market. The Federal Reserve's decisions on interest rates will be critical.
• Inflation: Persistently high inflation can impact affordability and put pressure on buyers. Inflation is starting to ease, but it still affects how much people can afford to spend.
• Job Market: A strong job market usually means more people with the financial means to buy homes. If we see a slowdown in hiring or more layoffs, it could impact housing demand.
• Housing Supply: California has been notoriously undersupplied with housing for years. If more homes come on the market, it could lead to more buyer leverage and potentially lower prices. But, given the high demand in so many areas, new supply gets absorbed quickly.
• Economic Outlook: The overall health of the economy will play a crucial role. A recession, or even the fear of one, could lead to a slowdown in housing.

My Personal Thoughts

Okay, here's my honest take, based on my own experience and reading the market. I don't see a major, statewide crash coming. I think that a major crash is less likely because of the demand-supply gap that's been existing for years. However, I do see opportunities for buyers in 2025, especially if you're willing to be patient and strategic:

• Don't Panic: If you're a homeowner, don't panic sell because you read a headline about a potential market drop. The reality, as the data shows, is that it’s a complex picture with local variations. It doesn't look like a market where the sky is falling.
• Be Prepared to Negotiate: If you're a buyer, get ready to negotiate. The data shows that more homes are selling below their asking price and there is a potential weakness in the early months of 2025. You might have more negotiating power than you did in the past few years.
• Think Long Term: Real estate is a long-term investment, not a get-rich-quick scheme. Focus on your personal financial goals and what makes sense for you in the long run. Trying to time the market is a recipe for stress.
• Pay Attention to Local Markets: Don't rely on state-level trends; zoom in to specific neighborhoods. What's happening in San Francisco is different from what's happening in Riverside or Bakersfield. Do your homework!
• Work With Professionals: If you're serious about buying or selling, team up with a good real estate agent, a mortgage lender, and perhaps a financial planner. They can give you personalized advice based on your situation.
• Stay Informed: Keep reading sources like this and doing your research to stay ahead of the game. The market changes quickly, and keeping up is the key.

Conclusion

So, will housing prices drop in 2025 in California? It's not a simple yes or no. I'd say it's highly likely that some areas will see price dips in early 2025, followed by a potential rebound. Some regions, however, will see an upward trend through the year. The market is expected to continue to be highly variable across California, so it’s vital to do your due diligence. If you're in the market, whether buying or selling, I encourage you to stay patient, informed, and proactive. With the right approach, you can navigate this complex landscape.