2025 California Real Estate forecast: a market on the road to recovery
The latest housing market predictions from the California Association of REALTORS® highlight key trends for 2025, including declining mortgage rates, rising home prices, and sales growth. However, affordability remains a challenge, insurance hurdles persist, and the market is shifting toward a renter majority. Despite these obstacles, buyers and investors can find opportunities in a recovering economy.
5/8/20242 min read
As we step into 2025, the California real estate market is emerging from turbulence, with signs of recovery and transformation. The latest 2025 Economic & Housing Market Forecast, presented by Jordan G. Levine, Senior VP & Chief Economist of the California Association of REALTORS®, provides critical insights into what lies ahead for buyers, sellers, and real estate professionals.
A Market off life support, but not fully healed
The housing market is stabilizing after years of volatility. Key economic indicators point to a soft landing rather than a crash, as inflation eases and interest rates show signs of gradual decline. However, structural issues such as housing affordability, insurance challenges, and a lack of inventory remain unresolved.
Key Predictions for 2025: what to expect?
✅ Mortgage rates set to decline – While rates remain high compared to historic lows, they are expected to ease in 2025, improving affordability.
✅ Home prices will continue to rise – The median home price is forecasted to reach $909,400, a 4.6% increase from 2024, driven by low inventory and steady demand.
✅ Sales activity will rebound – After a sluggish 2024, home sales are expected to grow 10.5%, as buyers adjust to the new interest rate environment.
✅ Affordability remains a challenge – Only 16% of California households can afford a median-priced home, the lowest level since 2007.
✅ Housing supply still lagging – While new construction has slightly increased, it remains far below demand, keeping prices high.
Challenges that could shape the market
📉 Bond market volatility – Fluctuations in the bond market continue to impact mortgage rates, causing uncertainty for homebuyers.
🔥 Insurance crisis – Many buyers are struggling to secure affordable homeowners insurance, particularly in wildfire-prone areas, leading to failed escrows.
🏡 First-time buyers face an uphill battle – While more Millennials and Gen Z are looking to buy, misconceptions about down payments and mortgage qualifications create barriers to homeownership.
🌆 Shift toward a renter majority – With affordability at an all-time low, California’s largest cities—including Los Angeles, San Francisco, and San Diego—are becoming majority renter markets.
Opportunities for Buyers & Investors
🔹 “Buy the Dip” mentality – The forecast hints at an unseasonably strong winter for the market, making it a potential window for buyers before prices climb further.
🔹 Luxury market as a leading indicator – The high-end real estate segment continues to drive trends, signaling confidence among affluent buyers.
🔹 Creative financing & incentives – Expect more buyers to explore adjustable-rate mortgages (ARMs), seller concessions, and new affordability programs to make homeownership attainable.
The bottom line: a market in transition
While challenges persist, 2025 presents new opportunities for those who navigate the market strategically. Lower mortgage rates, a rise in sales activity, and a recovering economy set the stage for a real estate market poised for growth—but only for those who are prepared.