Despite the Federal Reserve’s recent interest rate hikes, which have caused a ripple effect across the housing market, Southern California’s real estate market remains resilient. Home prices continue to climb, buyer demand remains strong, and experts suggest that the region’s enduring appeal, combined with limited housing inventory and a growing trend of remote work, is helping to sustain this momentum.
Overview of the Market: Rising Prices and Steady Demand
According to the latest data from the California Association of Realtors (C.A.R.), the statewide median home price in California reached $884,350 in March 2025, marking a notable 6.7% increase from February and a 3.5% rise from the same time last year. This uptick, despite higher mortgage rates, reflects the continued demand for homes across Southern California. While sales dipped slightly by 2.3% from the previous month, they were up 4.9% compared to March 2024, indicating a steady and ongoing interest in real estate in the region.
In fact, C.A.R. forecasts that the median home price will continue to rise, predicting a 4.6% increase for 2025, reaching a projected $909,400 by the end of the year. Experts attribute this anticipated growth to a combination of factors, including improved housing supply conditions and the potential for lower mortgage rates later in the year, which could stimulate more buying and selling activity.
Regional Highlights: Los Angeles, Irvine, and Inland Empire
Despite the challenges of rising rates, certain areas of Southern California have seen significant growth in home prices, including Los Angeles, Irvine, and the Inland Empire. These markets are some of the most desirable, attracting buyers from both in-state and out-of-state locations.
Irvine, located in Orange County, continues to be a high-demand area due to its proximity to tech hubs, excellent schools, and attractive amenities. In the past year, home prices in Irvine have surged by 11.6%, reaching an average of $1.615 million. This growth is driven in part by its reputation as a family-friendly, well-planned city, which continues to appeal to high-income buyers, particularly those working in the tech, healthcare, and finance sectors. With demand continuing to outstrip supply, Irvine is seeing record-low inventory, making it difficult for prospective buyers to find homes at affordable prices.
Meanwhile, the Inland Empire, which includes Riverside and San Bernardino counties, has seen more buyers flock to the region due to its relatively lower housing prices compared to coastal cities. Riverside County’s median home price rose to $510,000 in December 2024, a 5.0% increase from the previous year. Similarly, San Bernardino County saw a 6.0% rise, with median prices reaching $450,000. These areas have become increasingly attractive to first-time homebuyers and those looking to escape the high prices of Los Angeles or Orange County.
Factors Driving the Resilience of the Market
Several key factors continue to prop up the Southern California real estate market, even in the face of rising interest rates:
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Limited Housing Inventory: One of the primary factors keeping prices high is the continued shortage of available homes for sale. According to C.A.R., inventory levels are at historically low levels, with many homeowners hesitant to list their properties due to the higher rates they would face on a new mortgage. This scarcity of homes is leading to competitive bidding, especially in high-demand neighborhoods, which is keeping prices elevated.
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Remote Work Flexibility: As remote work continues to play a central role in how Americans approach their careers, many individuals are rethinking their housing needs. Those previously confined to urban cores with long commutes are now able to consider suburban or even rural areas with more affordable housing. This trend has bolstered demand for single-family homes, which offer more space for home offices and larger living areas. Buyers are increasingly seeking properties with more room for their families and workspaces, further driving the need for suburban properties.
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Strong Local Economy: Despite the interest rate hikes, Southern California’s economy remains one of the most robust in the country. The region is home to major industries, including entertainment, technology, and healthcare, which continue to fuel demand for housing. As businesses adapt to hybrid or fully remote work models, people are relocating to Southern California for its favorable climate, lifestyle, and job opportunities.
Affordability Challenges Persist
However, the Southern California housing market’s strength comes with a downside: affordability remains a major issue. In the first quarter of 2025, only 17% of California households could afford the median-priced home of $846,830, requiring a minimum annual income of $218,000 to qualify for a typical mortgage. This affordability gap is becoming a significant challenge for many would-be buyers, particularly first-time buyers and younger households who are struggling to enter the housing market.
As home prices continue to rise, many prospective buyers are being priced out of the market or forced to look further inland or even out of state for more affordable options. Areas like Riverside and San Bernardino are increasingly attractive to those who can no longer afford homes in pricier markets like Los Angeles or San Francisco.
The Outlook for 2025: What’s Next for Southern California?
Looking forward, experts predict that the Southern California real estate market will continue to experience moderate price increases in 2025. However, the pace of growth may slow as affordability becomes a larger concern. While demand remains high, particularly in areas with limited inventory and desirable amenities, many buyers are feeling the pinch of higher monthly mortgage payments due to elevated interest rates.
“The biggest challenge in the coming years will be balancing supply and demand,” said Leslie Moon, a real estate agent with Coldwell Banker in Los Angeles. “With inventory so tight, we may see prices continue to hold steady or increase slightly in the short term, but the affordability issue will eventually start to weigh heavily on the market.”
As mortgage rates stabilize and inventory levels improve, the market could experience a shift toward more balanced conditions. Home prices may level off, and the market could see a greater number of buyers and sellers willing to make deals. Still, the region’s inherent desirability and robust job market will continue to fuel demand for homes, ensuring that Southern California remains one of the top housing markets in the United States.
By: Elle Tran
