California’s Housing Market Forecast: What Buyers Should Know

If you’re thinking about buying a home in California, understanding the CA housing market is vital to the home-buying process. The California housing market is dynamic, complex, and influenced by many different factors. Whether you’re buying your first home, a smaller or larger one, or an investment property, you’ll want to understand the market before…

Written by

Tyler Arnaiz

Published on

September 19, 2024

If you’re thinking about buying a home in California, understanding the CA housing market is vital to the home-buying process. The California housing market is dynamic, complex, and influenced by many different factors. Whether you’re buying your first home, a smaller or larger one, or an investment property, you’ll want to understand the market before you buy.

Current California Housing Market

California’s housing market is known as one of the most competitive markets in the country. With close to 40 million residents in 2022 and over 67,000 people moving there every year, it’s also one of the country’s most active markets.

The state’s major cities like Los Angeles, San Diego, and San Francisco each have active housing markets, but smaller California cities have competitive markets too.

Housing Supply and Demand

Supply and demand are often out of balance in the California housing market. Due to the population and high influx of new residents, there’s an extremely high demand for housing.

According to Redfin, there were approximately 90,0922 homes listed on the market in California as of May 2024. While this might seem like a lot of houses, it’s not enough compared to the demand.

Some factors driving demand for housing in California include overall population growth, a desirable climate, and economic and job opportunities.

When demand is high, it creates a very competitive environment for homebuyers — and high demand drives high home prices. As demand continues to increase, home prices will continue increasing as well.

California Market Statistics

California is one of the most expensive states to move to. Understanding what the average home value is can help you better budget and prepare for your move.

The average value of homes and rental costs greatly depend on the location and size of the property. The median sale price of a home in California is around $786,938, but this number varies throughout the state.

Here’s a breakdown of average home value in some of the most populated cities in California:

If you want to live in one of the major cities but are budgeting for something that costs less than the average, look at suburbs or smaller surrounding towns.

Since the housing market in California is so competitive, many people choose to rent until they can find the home they want and can afford. With the national average of rent prices sitting around $1,518 per month, renting in California is quite expensive in comparison. Here’s a look at average rent prices in the four cities previously mentioned:

The number of homes sold in the state varies each year due to fluctuations in supply and housing demand. On average, California sees anywhere from 260,000 to well over 500,000 homes sold annually. Home prices are on the rise throughout the state, but data shows that Santa Monica and Santa Barbara are the two cities with the fastest increasing sales price.

Single Family Home Sales

Single family homes are the most common type of home sold in California. Because they’re in constant high demand, buyers face affordability challenges in this competitive housing market.

Around 65.2% of all the homes in the state are considered single family homes. In many cities throughout California, home buyers can expect to pay at least half a million dollars for a single family home.

Recent Housing Market Trends

Understanding trends in the housing market is helpful when deciding when to buy or sell a house in California.

Whether you’re looking to buy a home in the San Francisco Bay Area, Southern California, or somewhere in the beautiful mountains, California’s median home price is rising while home sale rates are dropping due to a housing affordability issue.

Economic Factors Affecting The Market

The California real estate market is greatly affected by different economic factors. The main economic factor influencing the California real estate market is inflation. Since 2020, inflation rates have risen roughly 20%.

Inflation affects everything from grocery and gas prices to the cost of materials to build houses. This is partly responsible for the rising median home prices across the state and the country. Despite these rising prices, demand remains high. With an abundance of job opportunities, California continues to see a slow but steady increase in housing demand.

Adjustments to the Federal Reserve Bank have impacted interest rates in recent years, which also affect the California housing market. Many people looking to buy a home in California are seeing elevated interest rates when applying for home loans. These higher mortgage interest rates will continue to make market conditions difficult to navigate.

Regional Variations Within California

California is the third largest state in the United States, meaning there’s a great deal of regional variation in housing prices and market conditions. Spanning over 155,000 square miles, the state has a very diverse landscape and, therefore, a diverse housing market.

When you consider cities along the coast, you’ll tend to see higher median prices and sale prices. In major coastal cities like San Diego, San Francisco, and Los Angeles, homes are in high demand, selling for far more than homes further inland or in smaller towns.

In Central Valley and other inland areas, homes have a more affordable median sale price compared to coastal and larger cities. When comparing coastal and inland communities, consider the fact that home values generally appreciate more slowly those closer to the ocean, meaning it will take longer to build home equity.

A few CA cities with lower median home prices include:

  • Modesto
  • Stockton
  • Fresno
  • Bakersfield

California Housing Market Forecast

The US housing market is constantly changing. It’s hard to say precisely what will happen in the future of the California housing market, but experts often make informed housing market predictions.

Changes in Home Prices

Experts believe home prices in California will continue to rise. Currently, home prices are up 9.8% year over year. Things like inflation, economic growth, and increased housing demand all contribute to the increase. With a steady rise in prices, the market will remain competitive, with more people wanting to buy and fewer people wanting to sell.

While the California housing supply is abundant, affordability challenges will continue to impact the rate of real estate sales. While these predictions are based on current trends, significant economic events like a housing market crash could drastically alter these predictions.

Interest Rates

Mortgage rates are currently in flux nationwide. However, they are expected to fall in 2025, making borrowing more favorable for home buyers.

As mortgage rates fall, more people will be able to afford rising house prices. However, if rates keep rising, this will negatively impact the number of people who can afford to buy a home.

Impact on California Homebuyers

The housing market can have significant impacts on everyone involved in real estate, but especially homebuyers.

Opportunities and Challenges

There’s no way around it — homebuyers in the California market are facing significant challenges. That said, there are also opportunities. For example, homeowners are experiencing significant appreciation in property value, boosting the value of their long-term investment by increasing their home equity and home sale potential.

Challenges include high competition with other homebuyers, a high demand for homes, higher home prices, and higher down payments.

Looking into market conditions when you’re getting ready to buy will help you determine if it’s the right time to buy a home in California based on your situation.

Strategies to Navigate The Market

It doesn’t matter if you’re a real estate investor or simply shopping around for a new home. Knowing how to navigate the California housing market will make your home buying experience easier and more enjoyable.

Here are some strategies to help you navigate the complex real estate market in California:

  • Consider expanding your search area
  • Find ways to be flexible with your budget
  • Work with an experienced real estate agent
  • Explore a variety of financing options
  • Wait to buy during a favorable buyer’s market

California Housing Market for Different Buyer Types

Different types of buyers experience the housing market differently. Here are a few examples of how your situation will affect your experience of the California housing market.

First-Time Homebuyers

First-time homebuyers may face the most challenges when buying a home in California. With higher-than-average home prices, first-time homebuyers might struggle to find a home within their budget that meets all their criteria like location, size, and features.

That said, many assistance programs are designed specifically for first-time homebuyers. FHA loans from the Federal Housing Administration, for example, can be beneficial for these buyers because they require lower down payments and are more lenient with credit score requirements.

Downsizers

California has a favorable market environment for downsizers, especially if you’re selling and buying within the state. In this case, you can sell your home at a higher rate than what you bought it for, covering much of the cost of the smaller home.

If you’re a downsizer, keep an eye on market conditions so you can get the most out of selling and buying.

Up-Sizers

When it’s a seller’s market, up-sizers might face some struggles. With higher prices and low inventory, it can be difficult to find a larger home within the right price range.

What up-sizers can do to combat these challenges is to leverage the equity they have in their current home, if applicable. Substantial equity can help you afford a larger house, along with strict financial planning.

Investors

Property investors tend to thrive in California. Once you get past the high entry costs, CA tends to offer more favorable conditions to real estate investors than other states. With its large population and high property values, California offers the opportunity to earn a vast income from renting out your properties, making this a great place to invest.

Additional Considerations for the California Housing Market

Homebuyers face a lot of decisions during the buying process.

You will have to choose:

  • A city to live in
  • A neighborhood you prefer
  • The size of your home
  • What your budget is
  • When you can afford to buy and move

While these are all common considerations for homebuyers, California brings about a few other considerations that people in other states might not have to deal with.

Risk of Natural Disasters

California isn’t a stranger to natural disasters. Residents of the state are prone to experiencing earthquakes, floods, and wildfires. Everywhere in the state can be affected by these disasters, but certain areas are more prone. For example, the more inland you are in California, the more susceptible it is to wildfires due to less moisture.

Depending on the property a buyer chooses, the location alone might require them to have additional insurance in the event of a natural disaster. This can add extra costs, potentially swaying the buyer to purchase in a different area. Buyers can look into the disaster history of a particular area to determine whether that’s where they want to buy a home.

Water Availability and Regulations

One of the major issues that Californians face is the availability of water. Many areas of the state are prone to droughts, but even areas without droughts face water shortages.

Because of the water availability, California imposes strict water regulations throughout the state, impacting living conditions and property values. Homebuyers should research local water policies for the areas they’re considering buying in to determine how water availability will impact them.

Changes in Property Tax and Homeownership Costs

Buying a home doesn’t just require a down payment and closing costs. Additional costs can include homeowner’s association (HOA) fees, property taxes, insurance payments, and more. Anytime there’s a change in property tax policies, this can affect the cost of buying a home.

Buyers who work with a qualified agent can learn more about these changes and their potential impacts. However, home buyers should always do some independent research too.

Is it a Buyer’s or Seller’s Housing Market in California?

Knowing whether the housing market is more beneficial for buyers or sellers is an important component of making informed real estate choices.

When the market is considered a buyer’s market, this usually means there’s a high housing inventory and relatively low demand, leading to lower house prices and mortgage rates. This gives the buyer more negotiating power to secure the property they want.

In a seller’s market, there’s a low inventory of houses accompanied by a much higher demand. This drives house prices up, benefiting the seller but potentially causing an affordability crisis.

Right now, California is experiencing a seller’s market. Demand is outpacing inventory, driving up house prices and creating affordability issues for buyers. It’s not clear how long this seller’s market will persist, which is why homebuyers should stay up to date on market conditions and expert predictions.

Final Thoughts

Buying a home in California requires more than just searching for a home that fits your needs. The market in the Golden State is one of the most active and competitive in the country, with trends constantly shifting. Taking the time to understand market conditions and what impacts them, such as regional variations, economic growth, and tax policies, is vital to buyers.

Staying informed about the market in the state and city where you want to purchase a home will help you make more informed decisions and plan accordingly. Whether you’re a first-time homebuyer, looking to down or upsize, or building a portfolio of investment properties, seeking advice and assistance from professionals like Arnaiz Mortgage is a good place to start.

To find out how Arnaiz Mortgage can help you secure the home of your dreams, contact us today to get a personalized quote on mortgage rates.