The first reason is lower mortgage rates, predicted to drop from 6.95% at the start of the year to as low as 5.9% by the end of 2025. Cheaper borrowing will encourage buyers, and with migration loss for California slowing, competition for domestic and commercial property in California is increasing.
HIGH DEMAND WILL PUSH PRICES AND COMPETITION UP
That high demand is the second reason behind market growth. Modest growth in Californian housing supply, latest data shows a UII (Unsold Inventory Index) of 2.7 months, down from 3.3 last November, indicating that property is selling faster.
That demand is expected to remain strong due to California's historical value as a desirable location, with strong job opportunities. While more people may move out due to the unpredictable climate and natural disasters, the lifestyle and allure of California remain strong, boosting the value of property in California.
REDUCED LOCK-IN BOOSTS SALES
With the market freeing up and mortgage rates coming down, there is a reduction in the lock-in effect for homeowners, making them more likely to move up in the property market. Increased Housing Supply: More homeowners are anticipated to list their properties as the "lock-in effect" weakens, leading to an increase in available inventory.
That data is further boosted by the gentle rise in home prices. The California Association of Realtors projects a 4.6% rise in median home prices, indicating a stable and growing market that will bring new buyers to the market in search of strong returns. That rise will see the median home price rise to $909,400 in 2025.
Another boost to sales may come from the growing use of iBuyers to speed up the buying and selling of properties. While a national trend, anything that reduces the friction of the property buying process should be welcomed.
EXTERNAL FACTORS BOOST CALIFORNIA PROPERTY
Whatever the ongoing overall political outlook, California’s economic recovery is starting to strengthen. Since the pandemic, the number of jobs is up 2.3%. As the broader economy continues to recover, consumer confidence and spending power will increase, further supporting the property market.
Another factor is the growing population, expected to hit 40 million by the end of 2026, creating further demand for new properties. Those people will need work, creating a strong demand for fresh commercial real estate in California
THE OVERALL PROPERTY PICTURE
This combination of factors will drive growth across domestic and commercial real estate in California, requiring rapid decision-making among buyers in an increasingly competitive market. The opportunity to rebuild after the wildfires will create new housing stock, and the push for more smart homes, greener homes and further diversity will attract buyers to these niche markets.
All of these forecasts may change due to the impact of global, national and State politics, with California's property market rooted in the ongoing housing affordability crisis. If there is a rise in affordable housing, then the rest of the market has more room to drive growth too.
Political changes to zoning and environmental laws may ease some of the restrictions on building. And shifting trends like remote work and return office mandates may help shift interest to new types of commercial development.
Whatever the political landscape, California continues to offer a highly diverse range of living options, across the main cities and growing boutique rural destination towns. Each with a unique charm and appeal.
And, however the statistics change, an overall trend of price appreciation and a tight housing supply should continue to drive growth for a robust buying market.
