Mortgage Rates Are Easing But Still Influential

The California housing market in 2026 is beginning to stabilize after years of dramatic swings. While home prices remain high and affordability is still a concern for many, there are signs of improvement for buyers across the state. Moderating mortgage rates, gradual inventory growth, and a more balanced housing environment could make this a more favorable year for those ready to purchase a home.

At LBC Mortgage, we help clients navigate these trends with confidence, offering personalized solutions that make homeownership more accessible.

Modest rate declines expected in 2026

After reaching their highest levels in over two decades, mortgage rates began to decline slightly in late 2025. This downward trend is expected to continue in 2026. The California Association of Realtors (C.A.R.) projects that the average 30-year fixed mortgage rate will fall from 6.6% in 2025 to around 6.0% in 2026. This shift provides welcome relief to homebuyers who were previously priced out due to steep borrowing costs.

While this is a step in the right direction, rates are still considerably higher than the historic lows seen in 2020 and 2021, when some borrowers locked in rates under 3%. That context matters. In 2026, homebuyers must plan for mortgage costs that remain a significant part of their monthly budgets. We work with clients to help them compare rate options, explore adjustable-rate products when appropriate, and lock in favorable terms based on their goals.

Impact on purchasing power

Even small rate changes can dramatically affect what buyers can afford. A one-point drop in interest rates can translate into hundreds of dollars saved each month on a mortgage payment. For many Californians, this improved affordability opens the door to neighborhoods or property types that were previously out of reach.

By helping clients understand how rates influence their monthly costs and long-term equity, we empower them to make smarter financial decisions. Whether buying a first home or moving into a larger property, working with the right mortgage partner can make the process more efficient and affordable.

Home Prices Continue to Rise, But More Slowly

Slower growth in home values

Home prices in California are still on the rise, but the pace is cooling. According to C.A.R., the median home price in California is projected to increase by 3.6% in 2026, reaching approximately $905,000. This is a notable shift from earlier years when double-digit annual increases were common.

Price growth is now more aligned with income trends and inflation, which creates a more sustainable housing market. Although buyers still face high price tags, they can now approach the market with more predictability. Sellers are pricing homes more realistically, and bidding wars are less intense in many regions.

While overall state trends are useful, local market conditions vary widely. Coastal areas like San Francisco and Santa Monica remain among the most expensive, while inland markets such as Riverside and Sacramento offer more affordability and potential for price appreciation.

We help buyers understand these regional nuances and identify areas where their budget can stretch further. By combining local insights with real-time mortgage strategies, we guide clients toward smart investments that align with their long-term financial plans.

Affordability Remains a Barrier for Many

Housing affordability index shows slight improvement

Affordability in California has long been among the lowest in the country. While 2026 shows some improvement, the challenge is far from resolved. C.A.R. forecasts that about 18% of California households will be able to afford a median-priced home in 2026. That’s up slightly from 17% in 2025, but still far below the national average.

Affordability is calculated based on median incomes, home prices, and prevailing interest rates. Even with lower rates and slower price growth, many buyers still struggle to qualify without significant income, savings, or financial assistance.

Creative solutions for overcoming affordability challenges

To help bridge the gap, we offer access to a range of mortgage solutions designed for different financial situations. First-time buyer programs, down payment assistance, and flexible qualification standards can all help buyers move forward even when the market seems out of reach.

Affordability also improves when buyers look beyond high-cost coastal cities. Expanding the search to more affordable counties and emerging markets often reveals better value and long-term appreciation potential. We provide insights and tools to help clients evaluate these options and prepare strong, competitive offers.

Inventory Is Increasing, But Slowly

Ongoing supply shortage limits housing options

California’s housing market continues to suffer from a chronic shortage of available homes. While inventory is projected to rise by nearly 10% in 2026, it will still fall short of meeting buyer demand. Many homeowners who locked in mortgage rates under 4% during the pandemic are hesitant to sell, a trend known as the “lock-in effect.”

This reluctance to sell keeps listings low and competition high, especially in desirable neighborhoods. New construction has also failed to keep pace with population growth, adding to the supply imbalance.

More options for motivated buyers

Even with tight inventory, 2026 offers more choices than buyers saw in 2022 or 2023. As the market stabilizes and homeowners adjust to current rate environments, more listings are slowly becoming available. Builders are also focusing on starter homes and mid-priced properties, which can help meet demand from first-time buyers and growing families.

We help clients stay ahead of the market by providing early access to listings, pre-approval support, and tools to compare properties efficiently. With the right strategy, it’s still possible to secure the right home—even in a low-inventory environment.

Buyer Opportunities Are Expanding

Better negotiating conditions

One of the biggest advantages for buyers in 2026 is increased negotiating power. Unlike the ultra-competitive markets of past years, today’s sellers are more open to price discussions, repairs, and flexible closing terms. Buyers who are pre-approved and ready to act can secure favorable deals without the pressure of bidding wars.

Sellers are also more responsive to contingencies, giving buyers added protection in their contracts. This shift makes it easier to conduct thorough inspections, secure financing, and complete the transaction with confidence.

Equity growth potential

Buying in 2026 offers long-term benefits as well. Even with slower appreciation, California real estate remains a strong investment. Homeowners can expect to build equity steadily over time, especially as mortgage rates continue to normalize and buyer demand increases.

We help clients see the bigger picture—how today’s purchase can lead to future financial growth, improved credit, and better refinancing opportunities down the road.

Planning Ahead for a Successful Purchase

Preparation is key in a changing market

To succeed in the 2026 housing market, buyers must be well-prepared. This includes building strong credit, saving for a down payment, and understanding the full range of available mortgage programs. We offer guidance at every stage of the process, from planning and pre-approval to closing and beyond.

Buyers who enter the market with a clear financial strategy and the right support can navigate challenges more effectively and capitalize on emerging opportunities.

Why choose LBC Mortgage

At LBC Mortgage, we specialize in helping Californians overcome obstacles in a complex housing market. We provide fast pre-approvals, access to diverse loan programs, and expert advice tailored to each client’s goals. Whether you're buying your first home or investing in a new property, we simplify the mortgage process and help you move forward with confidence.