Changing Conditions

After years of record-breaking growth, the California housing market is beginning to show signs of moderation in 2025. The pandemic-era boom, fueled by historically low interest rates and remote work, pushed home prices to historic highs. Now, with interest rates slowly declining and inventory returning to the market, the frenzy is cooling. Buyers are finding that they have more leverage than in recent years—but expert guidance is still essential.

At LBC Mortgage, we understand how confusing the market can be during a transitional period like this. As experienced mortgage brokers serving all of California, we help clients navigate market shifts, find the right loan solutions, and get into homes with confidence. Whether you’re buying for the first time or upgrading, we provide a smooth path forward in an uncertain housing climate. Our local expertise and tailored service ensure you’re not just reacting to the market—you’re taking charge of your goals.

The 2025 California Housing Market: A Shift Toward Balance

Slowing Price Growth

Home prices across California are still rising, but not at the breakneck speed seen in previous years. According to the California Association of Realtors (C.A.R.), the median home price is projected to reach $909,400 in 2025, a 4.6% increase over 2024. That’s a notable slowdown from the 6.8% growth rate reported the year before. This reduced pace is offering much-needed breathing room for buyers who were previously priced out.

Increased Inventory

Inventory levels are finally climbing after years of scarcity. National data shows that active home listings have increased by nearly 29% year-over-year, with similar trends emerging in California’s urban and suburban markets. This rise is due in part to sellers who waited out the rate hikes and are now ready to list their homes as borrowing costs ease. More inventory means more options for buyers—and more time to make smart decisions.

Easing Mortgage Rates

Interest rates, a key factor in home affordability, are starting to decline. After peaking in late 2023 and holding above 6% in 2024, 30-year fixed mortgage rates are expected to drop to an average of 5.9% by the end of 2025. While this is still higher than the record lows of the pandemic, it marks a meaningful shift for buyers. Lower rates increase affordability and widen the pool of qualified borrowers.

Challenges Persist: Affordability and Insurance Costs

Ongoing Affordability Issues

Even as price growth slows and rates ease, affordability remains a challenge in many parts of California. C.A.R. projects the state’s housing affordability index will remain at 16% in 2025. That means only 16 out of every 100 households can afford the median-priced home, based on standard lending ratios. This figure underscores how tough it remains for middle-income families to buy in California.

Several factors contribute to this persistent challenge. Wages have not kept pace with housing costs, and inflation has squeezed household budgets. In addition, first-time buyers often struggle with saving for down payments, especially in cities where home prices remain near or above $1 million. Without creative financing or assistance programs, ownership feels out of reach for many.

Rising Insurance Premiums

Another overlooked cost that’s hitting California homeowners is insurance. Premiums have risen sharply due to natural disasters, rebuilding costs, and fewer insurers willing to cover high-risk areas. Wildfire-prone regions and coastal zones have seen the biggest spikes, and some insurers have pulled out of the state entirely. As a result, many buyers are shocked by the cost—or even availability—of required coverage.

This creates a new layer of complexity for buyers, particularly those considering homes in rural or hillside areas. Higher insurance premiums can impact debt-to-income ratios and limit financing eligibility. In some cases, buyers are forced to purchase state-sponsored insurance plans that are more expensive and offer less coverage.

Regional Variations: Different Markets, Different Realities

Not every part of California is reacting to the cooling trend in the same way. Market conditions still vary widely by region. In Los Angeles, home prices are expected to grow by a modest 1.5% through August 2025. That’s a stable outlook, reflecting strong demand and moderate supply growth. It’s still competitive, but the frantic pace has eased.

San Francisco, on the other hand, is seeing prices drop. Forecasts suggest a 3.5% decline in values over the next year. The tech industry’s reshuffling and affordability limits continue to weigh on demand. For buyers, this presents a rare window to enter a historically exclusive market at a discount.

San Diego is also in flux. The city is debating regulations that could ban algorithm-based rent pricing systems to improve housing affordability. This signals a shift toward tenant and buyer protection and could have broader implications for investment and rental markets. These policy changes highlight the importance of local knowledge when making a purchase decision.

Why LBC Mortgage Is Your Advantage in 2025

As California’s housing market enters a new phase, expert guidance matters more than ever. Buying a home today requires strategy, timing, and a deep understanding of changing conditions. At LBC Mortgage, we provide all of that and more. We’re not just here to process loans—we’re here to help you succeed.

We pride ourselves on fast approvals, competitive rates, and a wide range of loan programs. But what sets us apart is our service. We listen, we educate, and we advocate for you at every step. Our deep roots in California’s real estate landscape mean you’ll always have the insights you need—whether the market is hot, cold, or somewhere in between.

If you’re ready to buy in 2025, let’s make it happen—together. Reach out to LBC Mortgage and experience the difference a dedicated broker can make.