California home prices are set to exceed $900,000. Here’s what local real estate agents expect.
Professionals in Bakersfield, San Francisco and San Diego are still optimistic for 2025
Residential real estate agents in California are optimistic for next year’s housing market even with soaring home prices. (Mark Huddleston/CoStar)
By Moira Ritter
CoStar News
October 17, 2024 | 11:12 AM
Single-family home prices in California are expected to surpass a new affordability milestone in 2025, and local real estate agents say it’s a trend not likely to end anytime soon as other market conditions improve.
A recent report from the California Association of Realtors has forecast that the median cost of a single-family house will reach $909,400 in 2025, up 4.6% from this year and significantly higher than the current national median price of $412,300. The median price is calculated as the middle of the range of the cost of homes in the state.
The forecast cements California’s place among the most expensive states for homebuyers — a list that includes Hawaii, Massachusetts and Washington, D.C. — and it comes as a mismatch between housing supply and consumer demand is expected to worsen throughout the state as interest rates soften.
While state officials estimate that California needs to build more than 2.5 million homes in the next eight years to meet the state’s housing needs, economists and real estate agents anticipate demand will increase in the near future, making it even more difficult and competitive to find housing.
“Although inventory is expected to loosen as rates ease, demand will also increase with lower mortgage rates and limited housing supply, which will push home prices higher next year,” Jordan Levine, senior vice president and chief economist at CAR, said in a statement. “The housing shortage will keep the market competitive outside of big economic shocks, so prices will still rise.”
Affordable enclave
It’s a shift that has already begun manifesting in the city of Bakersfield.
Amid the ongoing affordability and supply issues, more homebuyers are turning to Bakersfield, which local real estate agent Laurie McCarty of The McCarty Group with Coldwell Banker called “the most affordable” metropolitan area in California.
In Bakersfield, the median price of a single-family house was just shy of $400,000, according to the latest data shared by CAR. That’s made the city an enclave for homebuyers seeking affordability, McCarty said.
“For either sellers who are selling a property that is far more expensive in the L.A. area or up in the Bay Area, coming here, buying a comparable home for half the price and banking their equity, or for someone who has not been able to purchase because they've been priced out of the market, they're able to come here and purchase,” she said.
But that movement has already had consequences. In the past five years, the median cost of a single-family house in Kern County, where Bakersfield is, has increased nearly 60%, CAR data showed.
“We are seeing locals start to get priced out of the market,” McCarty said. “And there is some concern that with this continued influx a lot of our local buyers may not be able to afford entry-level homes.”
That concern aside, McCarty said she’s encouraged by the market right now.
“We have this frenzy market that we have experienced for the last few years that is unsustainable,” she said. “We’ve needed some more balance to the market, right? And so, I think that is good. I think buyers needed more options, and we're starting to see that, and I think that is a good thing.”
Expensive cities
On the other hand, some markets are far outpacing the state median in the opposite direction. In San Diego, for example, the median home price is $1.1 million, according to CAR data.
And in San Francisco, a $900,000 house would be considered “really cheap,” according to agent Michael Bellings of the Bellings Brothers team with Compass. CAR data showed that as of August, the median home price in San Francisco County was more than $1.5 million.
Between high prices and interest rates, buyers have remained sidelined throughout the year, Bellings said. “We kind of expected a big boom this year with the kind of promise of lower interest rates, and we haven't quite seen it yet,” he said. “We’re just not getting these in this insane growth in the market that we thought we would.”
A recent study conducted by the Bay Area News Group and Joint Venture Silicon Valley surveying residents in the Bay Area found that high housing costs were the most cited reason for respondents seeking to move out of the region. At the same time, 96% of respondents indicated that the cost of housing was a serious problem in the area.
Bellings said a lot of listings he’s seeing are homeowners who bought their houses in the past five years and are now trying to resell the property at the same price. But “buyers are not justifying that price yet.”
“They just don’t think it’s worth more or at the same price that someone acquired it for in the last three years,” he said, explaining that buyers could be waiting for prices to ease before entering the market.
A similar trend has shown up in San Diego, according to Mike Safiedine, a Re/Max broker in the area who said he's seen "pent-up demand" among homebuyers and sellers, especially because so many people want to live in California.
"A lot of people still have their own mindset," he said.
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But despite those hindrances, both Bellings and Safiedine said they're still seeing market activity, and they expect that activity to speed up over the next year.
“I really believe that the housing market is going to continue to accelerate, and values are going to pick up in 2025,” Bellings said. “I do predict that it's going to be a really strong 2025, barring an unforeseen macro circumstance.”