Is California Real Estate Going Down?

California real estate’s status is complex, influenced by economic trends and regional conditions. Understanding these provides a clearer picture of its current state and direction.

Current Market Conditions

California’s real estate market reflects challenges and demand. The statewide median single-family home price reached $906,600 in Q2 2024, a 9.0% jump from Q2 2023, driven by limited inventory.

Sales volume increased by 19.5% from November 2023, reaching an annualized rate of 267,800 existing single-family home sales. This growth followed low sales, remaining below pre-pandemic norms.

Active housing inventory in California increased by 42% between June 2023 and June 2024. Despite this, overall inventory remains 34% lower than pre-pandemic levels in June 2019, indicating an ongoing supply shortage, contributing to sustained prices.

Properties in California spent a median of 26 days on the market in November, up from 21 days in November 2023, suggesting a modest lengthening of the sales cycle. The statewide sales-price-to-list-price ratio for single-family homes was 99.4% in November 2024, a slight decrease.

Key Influencing Factors

Factors impact California’s real estate market, shaping affordability and demand.

Mortgage interest rates affect borrowing costs and purchasing power. In Q2 2024, the average 30-year fixed-rate mortgage climbed to 7.10%, contributing to a $5,920 monthly payment for a median-priced home, pushing housing affordability to near 17-year lows; only 14% of California households could afford a median-priced home.

Housing supply and demand balance exerts influence. New construction struggles to keep up with population growth. Regulations and local policies impact new housing developments, tightening supply, which underpins property values even amidst higher interest rates.

Economic health, including employment and income growth, correlates with consumer confidence and home purchasing ability. Strong employment and rising incomes can offset higher interest rates, maintaining qualified buyers. Economic uncertainty or job market contractions can dampen demand.

Population migration patterns contribute to market dynamics. Inflows intensify demand in areas, while outflows might alleviate price pressures. These shifts are influenced by employment opportunities, cost of living, and lifestyle preferences.

State and local housing policies, like zoning and development incentives, shape the available housing stock. Restrictive zoning limits new construction density, while incentives for affordable housing or streamlined permitting encourage more development. These policies influence the long-term supply of homes and affordability.

Regional Variations

The California real estate market is not uniform, exhibiting regional variations in prices, inventory, and sales pace. Urban centers like the Bay Area and Southern California differ significantly from the Central Valley or rural coastal areas. San Jose-Sunnyvale-Santa Clara recorded a median single-family home price of $2,008,000 in Q2 2024, the first time any metro area tracked by NAR exceeded $2 million. Seven of the top 10 most expensive U.S. markets were in California.

Other regions experience different market dynamics, influenced by local economic drivers, land, and population density. While statewide trends offer a general overview, localized conditions are important. Job market strength and industry growth contribute to distinct market behaviors.

Even within a single metropolitan area, variations exist between submarkets. San Francisco saw single-family homes sell rapidly in Q2 2024 with low inventory, while the condo market softened with higher supply and declining prices per square foot. This highlights how property type and neighborhood characteristics lead to divergent trends.

Understanding Market Indicators

Real estate market health relies on understanding key indicators.

Median sales price represents the midpoint of all sales, preferred over average due to less skew from outliers. Sales volume indicates total properties sold over a period, showing market activity and demand.

Days on Market (DOM) measures median days a property spends on the market from listing to contract. Lower DOM suggests a faster market with higher demand; higher DOM indicates a slower market or increased supply. Price per square foot provides a standardized metric for comparing property values, allowing for accurate assessment regardless of home size.

Months of supply, or inventory levels, indicates how long it would take to sell all available homes at the current sales pace if no new homes entered the market. A balanced market has four to six months of supply; less suggests a seller’s market, more indicates a buyer’s market.

Affordability indexes measure the percentage of households that can afford a median-priced home, considering income, home prices, and interest rates. Analyzed together, these indicators offer a comprehensive view of market conditions and trends.