If you’ve been waiting on the sidelines of the California housing market, there’s encouraging news. After a period of uncertainty, key indicators are pointing towards a gradual improvement in affordability and activity for 2025 and 2026. Here’s a breakdown of what to expect.
The Headline: Steady Sales and Rising Prices
The core of the forecast is stability. Statewide sales of existing single-family homes are expected to hold steady in 2025 before inching up by 2.0% in 2026.
What’s driving this positive shift? Improving affordability. After hitting painful highs, mortgage rates are finally moderating. The average 30-year fixed-rate mortgage is projected to dip to 6.6% in 2025 and fall more significantly to 6.0% in 2026.
This modest relief, combined with softening home prices in recent months, is creating a slightly more accessible environment for buyers. As a result, prices are expected to begin a slow climb again:
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2025 Median Price: $873,880 (a 1.0% increase)
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2026 Median Price: $905,000 (a new record high)
A Key Catalyst: The Federal Reserve Cuts Rates
In a significant move, the Federal Reserve cut the federal funds rate for the first time in 2025. This 25-basis-point reduction signals a "shift in the balance of risks," with the Fed now paying closer attention to employment data.
This decision is crucial for the housing market. Lower Fed rates often translate to lower long-term mortgage rates, offering further relief to buyers and stimulating the broader economy. While the path of future rate cuts is uncertain, this initial step provides a foundation for market improvement.
Market Activity: Early Signs of a Rebound
The data from August 2025 provides a snapshot of this turning point. While sales are still below 2024 levels, pending sales increased year-over-year for the first time in nine months. This suggests that buyers are responding to the slightly improved rate environment, and we can expect closed sales to follow suit in the coming months.
A Note of Caution: Builders Are Holding Back
Despite the improving demand, homebuilders remain cautious. Single-family housing starts fell to a 13-month low in August. Factors like uncertainty around tariffs, a tightening labor supply, and a focus on economic risks are causing builders to pull back on new construction.
This continued constraint on new supply will help keep a floor under home prices, even as sales activity picks up.
The Bottom Line for Buyers and Sellers
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For Buyers: The window of opportunity may be opening. With mortgage rates projected to decline and affordability slowly improving, 2026 could present a better buying environment than we’ve seen in recent years.
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For Sellers: Steady, moderate price growth is on the horizon. While the market isn’t returning to the frenzy of past years, stable demand and limited new construction suggest your home’s value will continue to appreciate.
The Takeaway: The California housing market is navigating toward calmer waters. Supported by lower mortgage rates and resilient consumer spending, the outlook for the next 12-18 months is brighter, pointing to a market characterized by gradual, sustainable growth.
Would you like more insights on how these trends could impact your real estate decisions? Let us know! To schedule a meeting, email us at [email protected]
For more insights and expert analysis on real estate trends, visit the California Association of REALTORS® (C.A.R.) at www.car.org
