California is consistently among the states with the most dynamic real estate market. From Silicon Valley’s tech-led growth to the desirability of properties in Los Angeles along the coast, the state has long been the popular hotspot among property investors, homeowners and tenants. In 2025, several trends are anticipated that will reshape the California real estate market. Whether you are a prospective buyer, an investor, or a real estate agent in the housing industry, you must be at the top of these trends to make the right decisions for yourself and your clients.
Here’s what you need to know about California’s real estate market in 2025:
1. Projected Increase in Home Prices
The California Association of Realtors (C.A.R.) expects the median home prices to increase to $909,400 at a 4.6% year-over-year rate in 2025. This follows a projected 6.8% increase to $869,500 in 2024 from $814,000 in 2023. The persistent housing shortage and competitive market conditions are set to influence prices to rise further.
Source: California Association of Realtors
2. Anticipated Growth in Home Sales
C.A.R. expects existing single-family home sales to increase by 10.5 percent to 304,400 units in 2025 from a projected 275,400 in 2024. This growth prediction is attributed to lower mortgage rate anticipation, which is expected to hover around 6% in 2025, and improved housing inventory. This growth prediction will surely encourage both buyers and sellers to engage in the market.
Source: California Association of Realtors
3. Housing Affordability Challenges
Nonetheless, it is forecasted that even in 2025, home affordability will remain consistent at 16%, the same as in 2024, declining from 17% in 2023. This means that we can see more homes being sold out, but affordability will still be a major concern for most prospective home buyers. According to C.A.R., home prices in some suburban markets have increased by 8-12% year-over-year, urging buyers to move out of cities in search of better affordability.
Source: California Association of Realtors
4. Increased Demand for Suburban and Rural Areas
California is renowned for its bustling urban centres, amazing nightlife and immense economic opportunities. This state is associated with large metropolises like Los Angeles, San Francisco and San Diego. However, the COVID-19 pandemic shifted buyer preferences, with flexible work arrangements becoming the new normal. People began migrating from high-cost urban centres to relatively affordable sub-urban or rural areas. In 2025, this trend will continue as buyers are looking for larger homes with more space and a preference for staying close to nature. Cities like Sacramento, Fresno, and Riverside will likely grow further as workers relocate for more affordable housing options.
5. Rising Demand for Sustainable Homes
California has long been leading its commitment to sustainability, and the push for eco-friendly homes shall continue to grow in 2025. Buyers are increasingly seeking properties that align with their values of sustainability, energy efficiency, and environmental consciousness. Home features like solar panels, energy-efficient electrical appliances, and the usage of recycled wood and low VOC paint are becoming a priority for prospective buyers. This demand is further accelerated by state and local government initiatives to reduce carbon footprints and make homes more energy efficient. The California Energy Commission (CEC) has set ambitious goals for reducing emissions, which will continue to shape the market as new construction projects and accommodate existing homes to meet these standards. For buyers, investing in homes with eco-friendly features contributes to a healthier environment and brings long-term financial savings through reduced energy bills.
6. Growing Popularity of Multi-Generational Living
Multi-generational living is another key trend that has emerged strongly in California’s housing market. With families adapting to changing economic conditions and caregiving responsibilities, buyers are now inclined to look for homes with multi-living spaces. In California, the cost of living is high, and multi-generational homes offer a practical solution for families who want to pool resources while living together. Properties with in-law units, basements, or separate guesthouses are becoming more desirable as they provide the flexibility to accommodate extended families.
7. Revolution in Real Estate Technology
Technology in real estate is transforming the way transactions are done in California. Virtual home tours, intelligent real estate tech platforms, and blockchain-based transparent transactions in the industry are enabling tech-savvy buyers, sellers and agents to navigate the market with ease. In 2025, we can expect these technologies to become even more advanced, which can streamline the process and reduce friction to provide a sophisticated experience for both buyers and sellers. For example, 3D virtual home tours and interactive floor plans are predicted to become industry best practices. It will provide an immersive experience for potential buyers and can expedite the process of decision-making.
8. The Impact of Climate Change on Homebuyer Preferences
Climate change is one of the most important factors that is influencing homebuyer decisions in California. Considering the fact that the state is prone to natural disasters, including wildfires, droughts and floods. Homebuyers are becoming aware of the environmental risks in certain locations of the state. In 2025, buyers will continue to prioritize properties that are in low-risk zones and have adaptable infrastructure, such as fire-resistant materials or flood protection features. Buyers will also look for homes with sustainable energy sources and designs that mitigate climate impacts, ensuring that their investments are future proofed against environmental risks.
9. Real Estate Investment in Secondary Cities
While key markets like Los Angeles and San Francisco have become saturated and expensive, there is now a trend for real estate investors to look beyond California’s traditional top-performing locations. Adjacent cities such as Bakersfield, Stockton, and Chico are relatively affordable investment options and have the potential for long-term growth. With population growth expected in these regions, they are becoming attractive destinations for both homebuyers and investors.
10. Urban Revitalization and Development of Mixed-Use Properties
Urban revitalization projects will continue to play a significant role in cities like Los Angeles, San Francisco, and San Diego, which is predicted to shape the market in 2025. Many of California’s urban centres are undergoing redevelopment to accommodate the growing demand for mixed-use properties that blend residential, commercial, and recreational spaces. This trend is particularly strong in downtown areas, where people are increasingly looking for the convenience of living close to work, dining, entertainment, and public transportation.
Final Thoughts:
Looking at the current trends in California’s real estate market, 2025 is expected to be a promising year for homebuyers and investors. From the rise of suburban and rural properties to the increased demand for sustainable homes, understanding these trends will be essential for prospective buyers, investors, and industry professionals. Whether you are looking for a primary home, a second home, or an investment property, understanding California’s real estate trends is important for making the right decision. Remember to be at the top of your strategic decision. It is important to note that working and hiring real estate experts can help you gain a competitive edge in the ever-evolving market.
