As of June 30, 2025, Southern California’s housing market is starting to show signs of stabilization after several years of fluctuations caused by factors such as rising mortgage rates, the global pandemic, and shifting economic conditions. After experiencing a slowdown in early 2025, new data from the California Association of Realtors (C.A.R.) and other regional experts suggests that the market is beginning to pick up once again. While challenges like high mortgage rates and affordability issues persist, overall, Southern California’s housing market is positioned for modest growth through the rest of the year.
Key Market Trends for 2025
According to the latest C.A.R. forecast, home sales in Southern California are projected to rise by 10.5% in 2025, reaching an estimated 304,400 units, up from 275,400 in 2024. This represents a significant rebound for the market, driven in part by improving housing inventory and the slight reduction in mortgage rates. In addition, the median home price in Southern California is expected to increase by 4.6%, reaching an estimated $909,400 by the end of 2025. Although this increase is more moderate compared to previous years, it is still a positive indicator for the region’s housing market.
The primary catalyst for this recovery has been the gradual reduction in mortgage rates, which have fallen from their 2024 highs. Following the Federal Reserve’s decision to pause interest rate hikes in the first quarter of 2025, mortgage rates for a 30-year fixed loan dropped to approximately 6.5% by the end of June. This marks a welcome break for prospective buyers, as borrowing costs have been a significant hurdle in recent years. Lower mortgage rates mean that monthly payments are more manageable for many buyers, particularly first-time homebuyers and those looking to relocate.
Despite this positive development, the housing market in Southern California remains complex, with regional variations creating divergent trends. Areas like Los Angeles and Orange County continue to see steady demand for homes, with buyers willing to pay a premium for properties located in desirable neighborhoods. However, in areas further inland, like Riverside and San Bernardino counties, home prices are seeing more modest growth due to a slower recovery in those regions.
Regional Variations in Housing Demand
Southern California’s real estate market is incredibly diverse, and the dynamics can vary widely by region. Los Angeles County, which is home to a large proportion of the state’s housing inventory, remains a highly competitive market. The demand for homes in areas like West Los Angeles, Santa Monica, and Beverly Hills continues to outpace supply, driving up home prices in these neighborhoods. However, with affordability continuing to be an issue for many buyers, especially younger generations, the rise in housing prices has made it increasingly difficult for some to enter the market.
In contrast, regions like Riverside and San Bernardino counties, often viewed as more affordable alternatives to the coastal areas, have experienced a different set of challenges. These regions have historically been home to a significant portion of first-time homebuyers, who are often drawn to the area for its lower home prices and proximity to major employment hubs. However, rising mortgage rates have disproportionately affected buyers in these areas, where homebuyers are more sensitive to higher borrowing costs. As a result, affordability challenges remain a significant concern, even though home prices in these counties have remained more stable than in Los Angeles and Orange counties.
San Diego’s housing market, another major hub in Southern California, presents a more balanced picture. With a combination of coastal appeal and high-tech industry growth, the city continues to see strong demand for both single-family homes and condos. San Diego County’s real estate market is expected to see moderate price growth in 2025, driven by an influx of buyers from neighboring states, especially those from the Pacific Northwest and parts of the Midwest. San Diego’s relatively high median home prices may deter some first-time buyers, but the city’s growing economy, coupled with a stable job market, continues to attract investors and homebuyers looking for long-term gains.
In all these regions, housing affordability remains a critical issue, particularly for younger buyers and renters. Homeownership has become increasingly out of reach for many, especially in high-demand urban centers like Los Angeles and San Diego. However, some buyers are adapting by seeking smaller homes, purchasing in less expensive areas, or taking advantage of new affordable housing programs offered by local governments.
The Impact of Housing Inventory
While the Southern California housing market is seeing signs of recovery, inventory levels remain a key concern. In the first half of 2025, available inventory in many areas was still below pre-pandemic levels, despite an uptick in home sales. The lack of available homes, particularly in affordable price brackets, continues to put pressure on homebuyers and push prices higher.
According to C.A.R., there is a particular shortage of homes priced under $500,000, which has exacerbated affordability issues for many would-be buyers. This is especially evident in areas like Riverside and San Bernardino counties, where many buyers are seeking affordable starter homes, but supply is limited.
The inventory shortage is partly driven by homeowners holding onto their properties longer due to low mortgage rates on their existing homes. Many homeowners who purchased properties in the low-interest-rate environment of the early 2020s are hesitant to sell and move, given the current higher mortgage rates. As a result, this “lock-in effect” is keeping many homes off the market, making it difficult for new buyers to find suitable properties.
To address these challenges, some local governments in Southern California have begun to implement new housing policies aimed at boosting inventory. Programs designed to increase the construction of affordable housing, streamline zoning regulations, and incentivize developers to build more entry-level homes are starting to take shape. These initiatives, though still in their early stages, could help mitigate the inventory shortage and improve overall affordability in the years to come.
Looking Ahead: A Balanced Market?
As Southern California enters the second half of 2025, the housing market seems poised for modest growth, driven by a combination of factors including lower mortgage rates, increased inventory, and steady demand from both local and out-of-state buyers. However, affordability issues remain a persistent challenge, especially for first-time homebuyers and those living in high-demand areas.
Real estate professionals recommend that buyers and sellers stay informed about local market trends and consult with experts to make the most of the opportunities available in the market. Given the fluctuations in mortgage rates and regional disparities in home prices, understanding the nuances of the Southern California housing market is more important than ever.
