The California housing market, one of the most expensive in the country, is showing signs of stabilization in 2025. After years of skyrocketing home prices and record-low inventory levels, the housing market has finally begun to cool off as rising interest rates and increased inventory have brought a sense of balance to the market. According to the California Association of Realtors, the median home price in the state has plateaued at approximately $910,000 as of June 2025, showing only a modest increase of 3.5% compared to last year.
While this increase is still significant, it marks a dramatic slowdown from the double-digit price hikes seen in previous years. The slowdown is largely attributed to the Federal Reserve’s decision to raise interest rates in an effort to curb inflation. As a result, mortgage rates have risen, making home buying more expensive for many potential buyers. This has tempered buyer enthusiasm and slowed the frenetic pace of the housing market.
The Role of Higher Interest Rates
Rising mortgage rates have been one of the primary factors driving the slowdown in the housing market. In early 2025, mortgage rates reached 6.7%, up from the historically low levels of just 3.0% in 2021. This increase has made it more difficult for first-time homebuyers to afford homes, especially in expensive markets like Los Angeles, San Francisco, and San Diego.
For buyers who can still afford to purchase homes, the increase in mortgage rates means that they will likely face higher monthly payments. This has caused many prospective buyers to delay their home purchase or seek smaller, more affordable properties. Additionally, some buyers are looking for homes that are farther from the city centers in order to get more value for their money.
Increased Housing Inventory Offers Hope
In a positive turn of events, California has seen a modest increase in housing inventory in 2025. According to the California Association of Realtors, the number of homes for sale has risen by 5% compared to the previous year, providing buyers with more options. This increase in inventory has been driven in part by the construction of new homes, as builders have ramped up production to meet the growing demand for housing.
However, while inventory levels have improved, they are still nowhere near the levels needed to balance the market completely. The supply of affordable homes remains a key issue, with many buyers still struggling to find homes within their budget. Despite the increase in housing supply, there is still a significant gap between supply and demand in the most desirable areas of the state.
The Future of California’s Housing Market
Looking forward, experts believe that the California housing market will continue to show signs of stabilization in the coming years. While prices may not continue to rise at the rapid pace seen in previous years, home prices are not expected to fall significantly either. The combination of rising interest rates, more housing inventory, and slowing demand will likely result in a more balanced and sustainable market.
At the same time, housing affordability remains a major concern in California. As home prices remain high, many first-time buyers and low-income households are still being priced out of the market. Policymakers are considering measures such as rent control, affordable housing development, and zoning reforms to help address these issues.
For now, California’s housing market seems to be in a state of transition, with signs of both stabilization and continued challenges. It will take time for the market to adjust fully to the changes brought about by higher interest rates and increased inventory, but the hope is that over time, more Californians will be able to find affordable homes in the state.
