In early 2025, California’s housing affordability remained near historic lows, with just 15% of households able to afford the median-priced single-family home. High mortgage rates and rising home prices continued to limit market access for many buyers. While housing sentiment showed slight improvement, most consumers remained concerned about affordability, expecting further increases in home prices, rents, and mortgage rates. With mortgage rates expected to stay elevated, affordability challenges are set to persist in the coming months.

In the fourth quarter of 2024, California’s housing affordability faced significant challenges due to rising mortgage rates and elevated home prices. Only 15% of households could afford the median-priced single-family home, which was $874,290. This marks a decline from 16% in the previous quarter and remains unchanged from the same period in 2023.

In the fourth quarter of 2024, nearly 90% of real estate markets experienced an increase in home prices, reflecting a robust recovery despite previous economic uncertainties. According to the latest data from the National Association of REALTORS®, the trend was most prominent in small and mid-sized metro areas, which saw notable gains. Additionally, inventory remained tight, contributing to price hikes in many regions. The report highlights how resilience in local housing markets, combined with persistent demand and limited supply, has kept prices on the rise across the majority of markets.

New home sizes are shrinking, with many buyers now opting for smaller square footage. The trend reflects changing priorities, as affordability, sustainability, and a desire for more efficient living spaces drive decisions. With rising construction costs and interest rates, buyers are increasingly seeking homes that are more functional than expansive. While the larger, sprawling homes of the past may have dominated the market, the shift toward smaller homes is signaling a shift in how people want to live in their spaces, focusing on quality over quantity.

The housing market and economy started 2025 strong, with rising home sales, growing business optimism, and stable job numbers. Falling mortgage rates may boost homebuying demand as spring approaches.

Despite challenges, gains in home sales suggest a positive outlook for 2025. With increasing buyer demand and stabilizing market conditions, experts are optimistic for a more balanced housing market.

Using concessions strategically, such as offering financial incentives or assisting with inspections, can help sellers motivate buyers and close the deal faster, even in a competitive market.

Dropping mortgage rates may present a great opportunity for buyers to lock in lower payments. Experts suggest considering timing, personal financial stability, and market conditions before purchasing.

Buying a home during the holidays can offer less competition and lower prices, but limited inventory and potential delays may pose challenges for homebuyers, according to experts.