California's Housing Market: Ready to Thrive in 2025!

California's Housing Market Poised for Growth in 2025: C.A.R. Releases New Forecast

The California housing market is set to experience significant growth in 2025 as favorably low interest rates and improving housing supply drive both buyers and sellers back into action. According to the California Association of Realtors® (C.A.R.) 2025 Housing Market Forecast, the state is projected to see increases in both home sales volume and median prices, signaling an optimistic turn in market conditions after several challenging years.

C.A.R. projects that existing single-family home sales will grow by 10.5% in 2025, reaching an estimated 304,400 units. This marks an improvement from the 2024 projection of 275,400 homes, itself a 6.8% increase over the tougher 2023 sales volume of 257,900 units.

Median home prices are also forecast to climb. The statewide median price is anticipated to rise 4.6% to $909,400 in 2025, following a 6.8% increase in 2024, when the median price is expected to hit $869,500. The upward trajectory reflects ongoing housing shortages and a competitive marketplace, although the pace of price growth is predicted to decelerate compared to prior years.

A critical factor driving this growth is the expected decline in mortgage interest rates. The average 30-year fixed mortgage rate is projected to drop from 6.6% in 2024 to 5.9% in 2025, revitalizing market dynamics. Lower rates are anticipated to soften the "lock-in effect"—a condition where higher interest rates discourage homeowners from selling their properties, thereby limiting housing inventory.

“Lower borrowing costs will make the market more accessible for first-time buyers, while giving homeowners more flexibility to move and meet changing lifestyle needs,” said C.A.R. President Melanie Barker. “This dynamic will likely unlock pent-up demand from both buyers and sellers, fueling robust market activity in 2025.”

Despite these improvements, housing affordability will remain a significant challenge. The proportion of households that can afford a median-priced home in California is forecast to hold steady at 16% in 2025, unchanged from the projection for 2024 but down from 17% in 2023. High home prices and limited inventory continue to restrict opportunities for many prospective buyers.

Supply conditions are expected to improve modestly, with active listings predicted to increase by just over 10% next year. While this represents progress, the inventory will remain below historical norms. However, as interest rates decline further in the coming 18 months, homeowners who delayed selling during periods of higher mortgage rates are likely to re-enter the market, bringing more properties online.

C.A.R.’s forecast is grounded in expectations of a stable, albeit slower-growing, economy. The U.S. gross domestic product (GDP) is predicted to expand by 1.1% in 2025, down from 1.9% in 2024. Job growth in California is projected to decelerate to 1.1%, with the state’s unemployment rate increasing slightly to 5.6%. Inflation is anticipated to moderate further, with the Consumer Price Index (CPI) expected to average 2.0% in 2025, down from 2.9% in 2024.

While external risks such as broader economic shifts and unexpected market shocks remain, the outlook for California’s housing market remains optimistic. “Price growth is likely to be slower next year as demand and supply gradually balance out, but the persistent housing shortage will keep competition strong,” said C.A.R. Chief Economist Jordan Levine. “Assuming stable economic conditions, the state’s median home price could increase modestly to $909,400 in 2025.”

C.A.R.’s data-centric forecast underscores a pivotal moment for California’s housing market. With favorable interest rates and incremental supply improvements, the stage is set for a more vibrant market in 2025—poised to offer growth without the volatility of previous years.

• Home Sales: Projected 304,400 units in 2025, up 10.5% year-over-year.
• Median Price: Forecasted $909,400 in 2025, representing a 4.6% annual increase.
• Interest Rates: Average 30-year fixed mortgage rate expected to decline to 5.9%.
• Affordability: Remains unchanged at 16%, reflecting persistent challenges.

As the California housing market recalibrates, real estate professionals, investors, and buyers alike will need to watch trends closely to make the most of emerging opportunities.