Southern California’s real estate market is currently experiencing a mix of challenges as it grapples with elevated mortgage rates, tight inventory, and growing affordability concerns. As of June 27, 2025, these factors have continued to shape the region’s housing market, influencing both prospective homebuyers and sellers in ways not seen in recent years.
Mortgage Rates Impact on Housing Affordability
The housing affordability crisis in Southern California is being exacerbated by mortgage rates that remain significantly higher than those seen in recent history. According to the latest data from the Federal Reserve, mortgage rates have hovered around 7% for most of 2025, with no immediate signs of relief in sight. This is a substantial increase from the ultra-low rates that homebuyers enjoyed in the past decade, which have fueled high demand and rapidly escalating home prices.
The impact on homebuyers has been immediate. According to the California Association of Realtors (CAR), the median price of a single-family home in California has remained stubbornly high, especially in the coastal areas of Los Angeles, Orange County, and San Diego. For many potential buyers, the combination of higher mortgage rates and sky-high property prices has made it difficult to qualify for loans or meet the monthly payments associated with homeownership. Additionally, first-time homebuyers, who have already faced significant hurdles in entering the market, have found it even more challenging to save for a down payment while also navigating inflationary pressures in other areas of their lives.
While the high mortgage rates have had a cooling effect on demand, some real estate experts suggest that the current market dynamics could push potential buyers to reconsider other forms of homeownership, such as co-buying or turning to smaller properties outside urban cores.
Limited Inventory and Reluctance to Sell
One of the most persistent problems facing the Southern California housing market is the ongoing shortage of available homes. Many homeowners who locked in low mortgage rates in previous years are reluctant to sell and give up their favorable financing. According to a study by the Urban Institute, the number of homeowners selling their properties in California has dropped to historic lows, creating a supply-demand imbalance that continues to drive up home prices.
This tight inventory has been a key contributor to rising prices. According to data from CoreLogic, home prices in Southern California increased by 5.4% in the past year, with areas like Riverside and San Bernardino seeing some of the most significant price increases due to demand from out-of-state buyers and those priced out of Los Angeles.
However, not all areas of Southern California are seeing similar levels of price appreciation. In Los Angeles and Orange counties, for instance, home prices have plateaued in many neighborhoods as the higher cost of mortgages has discouraged potential buyers from bidding on homes. As a result, the Los Angeles market has become more stable, with a noticeable slowdown in bidding wars and a rise in homes staying on the market for longer periods.
Regional Variations and Emerging Trends
The real estate market in Southern California has always been highly localized, and these dynamics are no exception. In Los Angeles, one of the most expensive housing markets in the country, luxury homes and high-demand neighborhoods such as Beverly Hills, Santa Monica, and Malibu continue to show resilience in terms of pricing. However, even in these markets, homes are sitting on the market longer than in previous years, and sellers are finding themselves negotiating more with potential buyers.
Conversely, areas such as Riverside and San Bernardino counties, which have traditionally been more affordable, have seen rising interest from buyers looking to take advantage of lower prices compared to the coast. The Inland Empire’s real estate market has become more competitive, with homebuyers relocating from pricier parts of California or out-of-state.
Real estate investors have also begun to shift their attention to multifamily properties in certain regions, seeking to capitalize on demand for rental housing. While the rental market is still competitive, with rent prices continuing to climb, multifamily investments provide long-term returns in the form of steady rental income, which is attracting both institutional and individual investors.
Outlook for the Housing Market
Looking ahead, experts predict that the Southern California housing market will likely remain subdued until there is a substantial decrease in mortgage rates or an increase in available inventory. Without these changes, homebuyers may continue to face financial challenges, while sellers will have to adjust their expectations in a market where competition is less intense than it was during the pandemic housing boom.
The Federal Reserve’s decisions on interest rates will be crucial in shaping the trajectory of the market in the coming months. If mortgage rates remain high, Southern California may experience continued cooling in the housing market, with price increases slowing or even declining in certain regions.
In the meantime, prospective buyers are advised to stay informed about regional trends, as opportunities may arise in less competitive areas. Sellers, on the other hand, must be prepared for longer listing times and adjust pricing expectations accordingly.
