In a recent interview, leaders from the California Association of Realtors (C.A.R.) shared insights on what we can expect from the California housing market in 2025. According to their forecasts, we’re likely to see a surge of buyers and sellers entering the market, fueled by improving interest rates that are expected to ease the current “lock-in effect” and enhance the availability of homes.
C.A.R. anticipates that sales of single-family homes will increase by 10.5% in 2025, reaching approximately 304,400 units, up from a projected 275,400 units in 2024. This figure represents a year-over-year growth of 6.8% compared to the 257,900 homes sold in 2023.
When it comes to pricing, the median home price in California is projected to rise by 4.6%, climbing to $909,400 in 2025. This increase follows a forecasted jump of 6.8% in 2024, which would push the median price from $814,000 in 2023 to around $869,500. The persistent shortage of homes combined with a highly competitive market is likely to continue driving prices up in the upcoming year.
C.A.R. President Melanie Barker highlighted that the entry of more homes into the market and decreasing borrowing costs should encourage higher participation among buyers and sellers in 2025. She emphasized that as demand grows and interest rates hit their lowest levels in the past two years, first-time homebuyers stand to gain significantly.
Additionally, potential sellers who have felt trapped by the “lock-in effect”—those benefitting from lower-rate loans who are reluctant to sell and purchase new homes at higher rates—are expected to find more room to maneuver as mortgage rates decline. This newfound flexibility will empower them to pursue housing options that align better with their current needs.
C.A.R.’s 2025 forecast also indicates a further easing of inflation, with the average Consumer Price Index (CPI) projected to fall to 2.0% in 2025, down from 2.9% in 2024. Consequently, the average rate for a 30-year fixed mortgage could decrease from 6.6% in 2024 to 5.9% in 2025. Although these rates remain above those at the start of the pandemic, they are still below the long-term average of around 8% over the past 50 years.
The availability of housing is anticipated to improve gradually, with a moderate increase in active listings expected in 2025. As interest rates drop over the next 18 months, the “lock-in effect” could further diminish, encouraging more properties to come onto the market. Homeowners who have postponed moving and investors awaiting market recovery may see rising home prices as an opportunity to sell, likely leading to an increase in listings. While supply may still be limited, a boost of about 10% in active listings compared to 2024 is projected, reflecting ongoing market improvements and favorable borrowing conditions.
C.A.R.’s Chief Economist Jordan Levine noted that while falling interest rates may help ease housing supply constraints, demand will concurrently rise due to lower mortgage rates and limited housing availability, contributing to upward pressure on home prices in 2025. Although the rate of price growth may moderate, the ongoing housing shortage is expected to maintain fierce competition in the market, ensuring that home prices continue to climb unless significant economic disruptions occur.
