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California is a coveted place to live due to its temperate climate and variety of geography, from mountains to deserts and a mix of big cities and suburbs.
The consequence of being a desirable place to live is that housing prices are often higher here than in other parts of the country.
However, things are shifting, and according to Cristal Clarke, a Santa Barbara-based Realtor, 2025 may just be the year to consider buying in the Golden State.
More Single-Family Homes Coming Available
While California’s notoriously high-priced real estate market has faced challenges recently, 2025 is shaping up as a promising year for buyers, especially in high-demand areas, Clarke said.
She pointed to the California Association of Realtors’ (CAR) 2025 California Housing Market Forecast, which suggests that single-family home sales are expected to increase by 10.5% to 304,400 units.
As mortgage rates are anticipated to ease, potential buyers previously priced out could find a more favorable environment, Clarke said.
Improving Interest Rates and Market Access
In 2025, the anticipated decrease in interest rates is expected to enhance the housing market by creating a more favorable borrowing environment, Clarke said. She noted that CAR projects that the average 30-year mortgage rate will decline from 6.6% in 2024 to 5.9% in 2025, which could help increase affordability and allow more buyers to enter the market.
“Lower interest rates are beneficial even for my discerning cash buyers who are generally less affected by financing costs as they tend to energize the overall housing market,” Clarke said.
With more buyers active, property values will strengthen, and appreciation can accelerate, supporting long-term equity growth for all buyers, including those purchasing without financing.
Stable Market Conditions With Modest Price Growth
While home prices will continue to rise, they are expected to do so at a slower pace than in the last few years, Clarke said, so getting in now will be better than waiting a few years. A projected 4.6% increase in median home prices reflects this steady but manageable growth, she shared.
Unlike the rapid price hikes of recent years, this gradual appreciation rate can offer buyers more predictable investment returns, she explained.
“The balance of stable price growth and increased inventory gives buyers an edge, especially in markets that are becoming less overheated,” she said.
Market Resilience in Luxury Segments Is Good for Everyone
While the average buyer is not looking to buy luxury homes, when these markets improve, this can be good for the housing market as a whole, she said.
“Santa Barbara and other coastal and affluent areas like nearby Newport Beach attract a high percentage of cash buyers who are less influenced by interest rate changes. This dynamic helps stabilize the luxury market in these areas, creating a more resilient investment environment,” she said.
Movement in High-Demand California Markets
While Santa Barbara is a strong market for its coastal appeal and high-quality amenities, other California regions also show promising investment potential in 2025, Clarke shared.
- Bay Area suburbs: Markets like Walnut Creek, Orinda and Mill Valley are seeing an uptick in interest from buyers seeking more space while remaining close to Silicon Valley and San Francisco, Clarke said.
- Sacramento region: As a more affordable alternative to the Bay Area, Sacramento continues to attract families and professionals who value proximity to Northern California’s job centers. Clarke said increased inventory here may allow for greater flexibility and pricing opportunities.
Southern California inland markets: Inland Empire cities such as Riverside and Rancho Cucamonga have become popular among buyers priced out of Los Angeles, offering a suburban lifestyle at a lower price point. This region is forecast to benefit from moderate price appreciation and increasing demand.
A Buyer-Friendly Inventory Landscape
Clarke feels confident that 2025 will see a healthier inventory, as lower rates will likely push more homeowners to list their properties, easing the lock-in effect.
“With CAR predicting an increase of active listings by over 10%, prospective buyers will encounter a more balanced market where they can negotiate more freely and potentially avoid the intense bidding wars of recent years,” Clarke said.
Long-Term Investment Potential and Equity Growth
For buyers looking at the long game, investing in California real estate remains a sound strategy, Clarke said. Even modest appreciation in high-demand areas can translate into significant equity gains over time.
“By purchasing in 2025, buyers have the potential to lock in properties at competitive prices and enjoy appreciation as demand remains strong, driven by limited inventory and continued desirability,” Clarke said.
While affordability challenges persist, particularly in regions with limited supply, inventory increases and stabilized interest rates make this a promising year for buyers ready to make their moves, Clarke said.
