As we close the book on 2025, California's economy is showing promising signs of stabilization and gradual improvement. While challenges persist, key indicators in housing, inflation, and business sentiment suggest the state is building a foundation for steady progress in the new year. Let's break down the latest data.
A Housing Market Moving Toward Balance
California's real estate sector ended 2025 on a cautiously optimistic note. Home sales in December reached their highest level since September 2022, closing the year 0.9% above 2024's total. This modest annual gain is a positive signal for market activity.
Perhaps more significant for buyers is the shift in prices. The median home price dipped to a 10-month low of $850,680 in December, bucking typical seasonal trends. For the full year, the median price still set a new record, but cooling competition and elevated inventory are applying welcome downward pressure. This cooldown is steering the market toward a better balance, offering more opportunity as we enter 2026.
Inflation Shows Signs of Easing
There's encouraging news on the inflation front. The latest Consumer Price Index suggests the wave of tariffs-induced inflation may have peaked. The annual CPI increase held at 2.7% in December, with core inflation unchanged at 2.6%.
Notably, shelter costs—a major component of the index—showed solid improvement, rising 3.2% annually compared to 4.6% a year prior. While inflation remains above the Federal Reserve's 2% target, the easing trend offers households and businesses some much-needed relief.
Small Business Sentiment Rises
The NFIB Small Business Optimism Index increased for the second straight month, reaching 99.5 in December. This uptick is driven by better expectations for business conditions and reduced economic uncertainty.
Fewer owners cited inflation as their primary problem, though tax concerns rose to their highest level since mid-2021. This shift in focus from inflation to other operational challenges reflects the improving economic landscape.
A Note on Foreclosures
Nationally, foreclosure activity rose in 2025 but remains well below pre-pandemic levels. In California, foreclosure starts saw a minimal increase of 0.8%. With projected economic growth and modest home price appreciation expected in 2026, foreclosure activity should stabilize in the coming months.
The Bottom Line for 2026
The converging trends from late 2025—cooling home prices, easing inflation, and rising business optimism—suggest California is entering the new year with a platform for measured growth. The market appears to be self-correcting toward equilibrium, which could foster more sustainable economic expansion.
While the start of 2026 may see soft housing demand and continued price adjustments, this period of recalibration is a healthy step toward long-term stability. For potential homebuyers, business owners, and policymakers alike, the data points to a year of gradual, steady progress ahead.+
Would you like more insights on how this trend could impact your real estate decisions? Give us a call or if you'd like to schedule a meeting, email us at [email protected]
