The California housing market is expected to experience changes in 2025, much like it did in the previous years. With shifting economic factors, housing inventory levels, and home sales, it's imperative that you conduct thorough research before selling or investing in real estate.
Factors That Affect Your Investment Decisions
Housing Market Inventory
There has been an increase in inventory in the California housing market compared to last year, with approximately 73,000 listings in May 2025, up from about 48,500 in May 2024. The available inventory may necessitate lower home prices, although lower mortgage rates are also required to attract buyers to the market.
Home Prices
The state's housing market continues to experience rising home prices, although reports indicate that the pace has been slowing compared to previous years. Industry professionals predict that a cooling market will persist, driven by economic conditions, although it may not significantly impact housing affordability for potential buyers. California home prices remain among the highest in the US.
Financing Costs
Whether there is a housing shortage or not, home prices are significant enough to warrant consideration. In 2024, the median home price in the California real estate market rose to over $900,000, according to the California Association of Realtors (CAR). The mortgage rates continue to hover above 6.5% for a 30-year mortgage.
Housing Costs
If you intend to turn your investment into a rental property, you need to consider the costs that tenants have to deal with. Housing affordability encompasses both the cost of purchasing a home and the cost of living in the area. By comparison, California homes are about twice as expensive as the typical US home. Although it affects tenants the most, landlords must consider whether their rental income can keep pace with rising costs.
Location
Certain regions have lower borrowing costs and mortgage rates than others. Sacramento, for instance, will have a more competitive market and budget-friendly homes compared to San Francisco or San Diego County. Research the differences in home prices and determine whether you have the means to finance the investment.
Property Type
CAR mentioned that California home sales are decreasing due to buyers growing concerned about housing costs. Single-family home sales have decreased by 2.3% this year, and people are opting to rent due to rising home prices, resulting in a monthly payment that is twice as much. This could be a good indication for real estate investors who are looking to convert properties for rental income.
Population Growth
The California housing market, despite the high median home price, continues to see a growth in the population. With more people living in the area, the prospects for housing demand are looking great for property owners. The migration trends are due to people wanting to "pursue the California Dream," according to Governor Gavin Newsom.
Job Growth
The tech industry continues to thrive in the state, especially in Northern California. Still, there is a slight increase of 0.1% in the state's unemployment rate, which is higher than the national average of 4.2% in June 2025. With the rise of remote work trends, buyers are increasingly avoiding high-cost areas. The employment conditions pose a significant impact on the California housing market, considering that tech jobs are among the top reasons why residents want to move to the state.
Conclusion:
Today's market appears to be unbalanced, particularly in some areas of the state. The current population growth is already a positive outlook for projected rental demand increases. The next step is to determine which housing market has home values that align with your investment plans.
Properties in areas like the Central Valley and the Inland Empire are worth watching for buyers and sellers, as more buyers are gravitating towards locations with lower mortgage rates. If you have a higher risk tolerance and better financing options, the Bay Area is also a good place to look, even with the price growth of median-priced homes.
Researching housing market forecasts can help buyers and sellers spot significant changes and determine whether these would favor their investment. If you're unsure what to make of the numbers, consulting professionals like real estate agents or property managers would be a good place to start.
Why These Factors Are Important
Buyers and sellers both face risks when entering transactions without the necessary knowledge. Studying the housing market forecast and considering the factors mentioned above lets you know whether you're making the right investment or selling at the best time.
Buyers might need to wait for lower interest rates before investing, and sellers would profit better when there's a limited inventory. Considering these individual circumstances is the key to a successful venture.
California Real Estate Market FAQs
Is the California real estate market cooling off or still hot in 2025?
- It varies by region. While some urban areas have stabilized, suburban and coastal regions are still competitive due to limited inventory and ongoing demand.
Are home prices expected to drop in California?
- Some areas may see price corrections, but a statewide crash is unlikely unless interest rates spike or economic conditions deteriorate significantly.
What’s driving demand in the California real estate market?
- A limited housing supply, job growth in tech sectors, a desirable climate, and investor activity continue to drive demand.
Do buyers pay closing costs in California?
- Yes. Buyers typically pay 2–5% of the home’s purchase price in closing costs, including lender fees, title insurance, and escrow charges.
Are interest rates impacting buyer activity in California?
- Yes. Higher mortgage rates have slowed buyer activity in some markets, but demand remains strong in prime locations.
Is rental demand still high in California?
- Yes, particularly in cities with strong job markets and limited rental inventory. Rents remain high, especially for multifamily units.
How We Can Help You Decide
Whether you're selling or buying real estate in California, making an informed decision is crucial. This is where we can help. Our resources and expertise will enable you to examine industry statistics, market trends, and other key factors to inform your decision.
Even tools like our free rental analysis can help you decide whether a property is worth investing in or whether it's better to keep it and turn it into a business. Let us guide you through your real estate journey.
Contact us today, and we'll be happy to tell you about the services we offer.
