Expanding Rates Expected to Increase California Home Sales by 10.5% by 2025
The California Association of Realtors expects existing single-family home sales to reach more than 300K units by the end of 2025. The active list will also need to be improved by 10 percent.
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The Federal Reserve’s decision to lower the federal funds rate by half a point has injected much-needed hope into the housing industry, as the reduction in mortgage rates is expected to spark a new wave of consumer activity – particularly in California.
The California Association of Realtors said Monday that annual single-family home sales in the state are expected to increase 10.5 percent from 275,400 units by the end of 2024 to 304,400 units by the end of 2025.
Melanie Barker | Credit: LinkedIn
“The increase in homes for sale, along with lower borrowing costs, is expected to attract more buyers and sellers to the market in 2025,” said CAR President Melanie Barker in the report. “Demand will increase as we start the year with the lowest interest rates in more than two years, especially for first-time buyers.”
“In the meantime, would-be home sellers, who are blocked by the ‘lock-in effect,’ will be able to pursue a home that better suits their needs as housing prices continue to fall,” he added.
As the consumer price index (CPI) moves closer to the Fed’s target of 2.0 percent, CAR predicts the 30-year average fixed-rate mortgage rate will drop to about 5.9 percent by 2025. While the 5.9 percent is far from the historic decline seen in 2021 and 2022, the report noted that it is significantly lower than the 50-year average of 8 percent.
The easing measures should lead to double-digit growth in existing home listings, with active listings expected to increase 10 percent by the end of 2025. That increase is expected to slow annual median home price growth to 4 percent by 2025; however, the state’s median home price is still the highest in the nation at $909,400.
“While inventory is expected to decrease as prices slow, demand will increase with lower home prices and limited housing availability, which will push home prices higher next year,” CAR Senior Vice President and Chief Economist Jordan Levine said in the report. “Price growth is expected to slow, but the housing shortage will keep the market competitive without major economic disruptions, so prices will still rise.”
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