Residential Real Estate News
California Realtors Predicting a Rosier 2025 for Local Home Sales
The California Association of Realtors (C.A.R.) has recently released its 2025 housing and economic forecast, predicting a more favorable interest rate environment that will ease the current "lock-in" effect, leading to improved housing inventory. This shift is expected to encourage both buyers and sellers to re-enter the market, boosting home sales and prices next year.
According to C.A.R.'s "2025 California Housing Market Forecast," existing single-family home sales are projected to rise by 10.5% in 2025, reaching 304,400 units, compared to the estimated 275,400 units in 2024--a 6.8% increase over the 2023 figure of 257,900 homes sold.
The median home price in California is expected to increase by 4.6%, reaching $909,400 in 2025. This follows a projected 6.8% rise to $869,500 in 2024, up from $814,000 in 2023. The ongoing housing shortage and competitive market are expected to continue driving prices upward.
C.A.R. President Melanie Barker explained that lower borrowing costs and an increase in homes for sale will likely attract more buyers and sellers in 2025. She noted that demand, particularly from first-time buyers, will rise as mortgage rates reach their lowest levels in more than two years. At the same time, sellers who have been affected by the "lock-in effect" will have more flexibility to move as mortgage rates decline.
The U.S. gross domestic product (GDP) is forecast to slow to 1.1% in 2025, following a projected increase of 1.9% in 2024. California's nonfarm job growth is expected to dip to 1.1% in 2025 from 1.5% in 2024, with the state's unemployment rate inching up to 5.6% from 5.4%. Inflation is expected to moderate further, with the Consumer Price Index (CPI) averaging 2.0% in 2025, down from 2.9% in 2024. The average 30-year fixed mortgage interest rate is projected to drop from 6.6% in 2024 to 5.9% in 2025, remaining below the historical average of nearly 8%.
Housing supply is expected to improve gradually, with a moderate increase in active listings forecast for 2025. As interest rates fall and the "lock-in effect" eases, more properties are expected to come onto the market, driven by homeowners who had delayed moving and investors seeking to capitalize on rising home prices. Although supply will remain below historical norms, active listings are expected to grow by just over 10% as market conditions improve.
C.A.R. Senior Vice President and Chief Economist Jordan Levine noted that while inventory is expected to loosen, demand will also rise due to lower mortgage rates and limited supply, driving home prices higher. Although price growth is projected to slow, the ongoing housing shortage will keep the market competitive. Assuming a stable economy in 2025, home prices are expected to rise modestly, with the state's median home price reaching $909,400--a 4.6% increase.
