High Rates Redefining the California Market

High mortgage rates—averaging 6.7% to 6.9% for 30-year fixed loans as of mid-2025—are redefining the single-family housing market in California. These higher borrowing costs are reducing buyer affordability, slowing home sales, and dampening builder activity. Despite the cooling market, home prices remain high due to a persistent lack of inventory. At LBC Mortgage, we help clients navigate these market challenges with tailored loan solutions, ensuring they remain competitive even in a high-rate environment.

Affordability Pressures from Soaring Rates

Diminished Purchasing Power for Homebuyers

At today’s rates, a median-priced home in California costs significantly more to finance than it did just two years ago. For example, financing an $800,000 home with a 6.8% rate versus a 4% rate raises monthly payments by over $1,500. This stark difference forces many buyers out of the market entirely. LBC Mortgage works with buyers to find alternative solutions, such as rate buydowns or adjustable-rate mortgages, to reduce their monthly burden.

Lock-In Effect Restricts Inventory

High rates not only impact new buyers but also trap current homeowners. Many are unwilling to sell and trade in their sub-4% mortgages for something nearly double. This “lock-in effect” severely limits the number of homes for sale. LBC Mortgage counsels homeowners on refinancing strategies and equity options that can help them make informed decisions about moving or upgrading.

Sales Volume Drops Across the State

Fewer Transactions in Major Metro Areas

California’s housing market has seen a sharp drop in activity. According to the California Association of Realtors (C.A.R.), single-family home sales declined by nearly 10% in early 2025 compared to the previous month. This trend is evident in Los Angeles, San Diego, and the Bay Area, where buyer hesitancy continues to grow. At LBC Mortgage, we help clients pre-qualify with confidence and lock in rates early to avoid future spikes.

Buyers on the Sidelines

Even buyers who qualify at today’s rates are increasingly hesitant. Many are waiting for rate drops or housing price corrections. LBC Mortgage encourages buyers to take a long-term view: real estate remains a strong investment, and we offer tools like payment calculators and rate monitoring to help clients time their purchases effectively.

Builder Activity Slows, Then Stabilizes

Permit Declines Reflect Market Uncertainty

Single-family housing permits in California have dropped to their lowest level in two years. Builders are scaling back projects due to higher financing costs and uncertain demand. Many new developments are being paused or delayed. LBC Mortgage works with developers and investors to structure loans that accommodate extended timelines and shifting market conditions.

Recovery Expected as Rates Ease

Despite the slowdown, C.A.R. projects a 10.5% increase in home sales in 2025, along with a rise in median home price to approximately $909,400. LBC Mortgage stays ahead of these trends to advise clients when to act—whether they are buying, selling, or refinancing.

Price Resilience in a High-Rate Climate

Limited Supply Keeps Prices High

California’s home prices remain elevated even as sales volume declines. The median price of a single-family home was around $884,000 in early 2025, up from the previous year. The supply of available homes remains tight, driven by restrictive zoning, low turnover, and slow permitting. LBC Mortgage educates clients on market trends so they can understand why prices may not drop significantly, even with reduced demand.

Regional Price Strength in Coastal Areas

Markets like San Francisco and Orange County continue to see price stability due to high income levels and sustained demand. Even as inland areas cool, coastal metros remain competitive. LBC Mortgage supports buyers in these markets with fast pre-approvals and competitive loan programs tailored for high-cost areas.

Geographic Disparities in Market Impact

Inland Markets Facing Stronger Headwinds

Areas such as the Central Valley and Northern California are seeing greater impacts from high mortgage rates. Inventory is rising, and homes are sitting on the market longer. LBC Mortgage helps buyers in these regions take advantage of slower markets, often securing seller concessions or favorable terms.

Coastal Cities See More Buyer Resilience

Despite higher costs, cities like Los Angeles and San Diego attract well-qualified buyers who are less rate-sensitive. These markets remain competitive, and LBC Mortgage helps clients stand out with fast underwriting and flexible financing packages that appeal to both buyers and sellers.

Inventory Remains Constrained

Mortgage Rates Suppress Listings

Higher rates not only reduce buyer demand but also discourage new listings. Homeowners with favorable mortgage terms are unlikely to sell, leading to historically low inventory levels. LBC Mortgage offers bridge loans and HELOC options for homeowners who want to buy before selling or tap into equity without giving up their low rate.

Limited New Construction Adds to Pressure

With builders scaling back and zoning policies restricting growth, new supply is not keeping pace with demand. LBC Mortgage works closely with construction lenders and developers to offer new build financing and land loans that help address supply challenges.

Policy Efforts and Long-Term Outlook

Legislative Moves to Boost Housing

California has passed several new laws—including SB 35 and AB 2011—to streamline approval for new housing. These measures aim to address long-standing supply issues by encouraging multifamily and affordable housing development. LBC Mortgage supports these efforts by offering financing for a wider range of property types and helping clients understand how policy changes may benefit them.

Forecast: Modest Rebound Ahead

C.A.R. forecasts a rebound in 2025, as mortgage rates gradually ease and buyer confidence returns. Sales volumes are expected to rise, although affordability will remain a challenge. LBC Mortgage continues to innovate with new programs, personalized advice, and market insights to keep clients ahead of shifting conditions.

LBC Mortgage: Your Partner in a Challenging Market

At LBC Mortgage, we understand the complexities of California’s high-rate housing market. Whether you’re a first-time buyer, homeowner looking to refinance, or investor seeking opportunities, we provide the tools and support to help you succeed. With expert guidance, flexible loan options, and a commitment to your goals, we make the home loan process clear and achievable—even when rates are high.

Navigating California’s housing market requires experience and strategy. Trust LBC Mortgage to be your guide every step of the way.