Learn more about the housing market in California

Every state is unique when it comes to the real estate market. That’s why it’s critical to understand the market you live or operate in. Whether you’re renting, buying or selling, it will impact many aspects of your life.  

California Housing Market Overview 

California is— and has been— the most expensive housing market in the United States. The state’s pleasant climate, endless activities, beaches, and mountains offer many people an appealing living situation. California is the nation’s most populated state with more than 39 million citizens (for context, Texas is second with around 31 million). In the 21st century, however, California’s population growth slowed down significantly. In fact, from 2000 onward, California has recorded its slowest growth rates ever. 

Recent statistics reveal that major metropolitan housing markets like Los Angeles, Sacramento, San Diego, and San Francisco are seeing reduced construction rates, significantly lower affordability than most American markets, and a worsening unemployment situation. This is reflected by bottom-tier homes in CA (e.g., a typical first-time home buyer’s purchase) coming in about 33% more costly than a mid-tier home in the rest of America. 

Many residents of California are facing a housing crisis. High interest rates and home prices have priced out many Californians who would otherwise be in the market. Experts say inventory and affordability must raise sharply before supply and demand can stabilize home prices. Going hand in hand with these issues is the fact that homelessness continues to be one of the worst problems for California. 

Affordability is particularly an issue in coastal areas and two-thirds of the population reside in these areas. For instance, only 8.4% of homes are affordable for families earning the local median income of $133,800 in San Francisco and San Mateo. An overwhelming majority of Californians have at least considered moving due to housing costs. 

California Housing Market Trends 

To understand the California real estate market, it’s important to keep up with trends. Let’s look at some key ones in CA: 

Note: These statistics are based on Redfin’s monthly housing data from April 2024. 

Median Home Price 

California’s median home price is $852,900, according to Redfin’s monthly housing market data from April 2024. This is a growth of about 11.8% since April of last year. Median prices are even higher in large metropolitan areas like Los Angeles ($884,400). High market values and rents have made housing unaffordable for many California residents, many of whom are frustrated with the state of housing in expensive cities like LA and San Diego. 

Number of Homes Sold in April 2024 

In April, there were 24,640 homes sold in California, up 13.3% from last year according to the Redfin dataset. Thus, even though California has had serious housing issues, selling and buying are still occurring at a high clip. However, it’s important to keep in mind that this number might be inflated compared to other months since nationally speaking, sales usually peak during the spring and summer months and slow considerably in the winter. In fact, the National Association of Realtors (NAR) predicts that in February and March alone, sales activity increases by as much as 34% and prices by 3%. 

Median Days on Market (DOM) 

Days on Market (DOM) is the average length of time a home remains listed on the market before being put under contract. A lower DOM signals an extremely competitive seller’s market with more pressure on buyers to come in with higher offers and remove contingencies. A higher DOM signals a buyer’s market with slower sales and less leverage for sellers. 

The current median DOM in California is 27 days. This is lower compared to many other states, and it’s well-known that California has been a market that typically favors sellers for years. 

New Supply Statistics 

Housing supply in CA continues to be a major issue. For instance, between 2010 and 2020, California’s population grew 6.1%, but the housing supply only grew 4.7%. Since 2020, California has been about 50% below the 180,000 new units per year needed to keep pace with its population. 

Property Tax Rate 

The average property tax rate in California is 0.75%, according to Rocket Mortgage. This places California’s average property tax rate as the 19th lowest in the U.S. It’s important to point out that property taxes vary widely depending on the specific county of California and the value of the home, so this average rate may or may not be indicative of your situation. 

Foreclosure Rate in Q1 of 2024 

In the first quarter of 2024, 1 in every 1,276 homes experienced a foreclosure filing (according to recent data from ATTOM). Based on this data, California’s foreclosure rate is higher than most other states. 

Hottest Local Markets in California 

California has several hot markets. Here are three of the most noteworthy: 

1. Los Angeles

As the second largest city in America, Los Angeles has the widest range of opportunities for investors. All types of real estate are available here, making many types of leasing possible. The Los Angeles housing market is diverse just like its demographics. The city hosts tons of visitors and tourists throughout the year, increasing demand for short-term rentals close to Los Angeles’ many culinary, artistic, retail, and recreational hot spots.  

Los Angeles experienced a recent drop in rental prices on average due to the recent exodus from Southern California. The 2.5% rental price drop in L.A. County is the second largest of any county in the state. An inadequate housing supply, however, means the market is still unaffordable for a lot of people. 

2. San Francisco

“The Bay Area” is one of the nation’s hottest housing markets. Things like the great weather and extensive job opportunities make it a popular place to live. Inventory and interest rates are two elements preventing an even hotter market, though.  

Buyer frustration is common in this market because inventory is extremely low and multiple offers on the same property are quite common. The San Francisco housing market has always been a pricey locality. 

3. San Diego

The San Diego housing market is extremely competitive. The Average home price was $970,000 in April of 2024.  

Even though it’s a pricey area, San Diego’s housing inventory does appear to be on the rise. This could help a little bit, but it won’t make a huge dent in what has historically been an incredibly expensive place to live. 

Factors Impacting the California Housing Market 

California’s market is influenced by macroeconomic trends and more granular economic factors specific to the state. 

Mortgage Rates 

High mortgage rates are a continuing difficulty for would-be homeowners in the U.S. California’s average rates for 30-year mortgages in June of 2024 are above the national average at 7.31%. Higher interest rates deter borrowing and discourage those who already own homes from putting their homes on the market. Many homeowners report feeling “tied” to their current homes, as it is unlikely they will secure a mortgage rate as low as their current if they move to a new property. Prospective buyers in California would be wise to monitor mortgage rates in the coming months for a better understanding of how they impact the housing market. 

Inflation and Cost of Living 

Mortgage rates relate directly to inflation, another massive contributing factor to the affordability of housing and the status of housing markets in general. Inflation has increased the cost of living for many across the U.S., including in California. This means fewer people can truly afford to limit housing costs to less than the recommended 30% of their monthly income.  

Population Changes and Demographics 

As it stands, California needs around 180,000 new houses every year to keep price levels somewhat reasonable for multiple economic classes. California had been losing citizens up until last year for three years running. More people have left California in the previous four years than the amount that have moved in from other states. Throw in an unemployment rate of 5.3% (this figure is the highest of any state), and it becomes clearer why people are migrating away. 

High Tax Rates and Regulations 

A recent study found that business headquarters left California at a high rate between 2018 and 2021. In 2021 alone, the monthly average was 12.3 businesses leaving per month. Many relocations aren’t public because most businesses are small and don’t have news coverage. Thus, there are additional business relocations not reflected in this figure. 

Beyond the numbers, though, the trend continues to move in this direction and that’s even more meaningful. Ultimately, businesses are still leaving California for more business-friendly states because of the lack of affordable housing, high taxes, cost of living, and burdensome regulations. 

California Housing Market Forecast 

The California housing market is sensitive to a myriad of factors, which are being closely monitored by real estate analysts and homeowners across the country.  

In general, housing market predictions for California are lukewarm, but many analysts believe the market will be better for buyers and sellers due to declining mortgage interest rates. Major cities and metropolitan areas like Los Angeles will likely see modest growth while the market continues to be tight as demand outpaces supply. The unemployment rate will still place a burden on the state and the housing market generally. Residents and prospective homeowners will continue to monitor high interest rates throughout the rest of the coming year. 

Likelihood of California Housing Market Crash  

Given the factors illustrated above, many investors and analysts are concerned about California’s housing market. Per a report released by data curator ATTOM, California is one of three states with a very high risk of housing market decline. 

Many experts are somewhat pessimistic about California’s housing market’s future. There are 14 counties in California that experts believe face the greatest risk: Butte County, Sacramento County, El Dorado County, Solano County, Fresno County, Kern County, Kings County, Madera County, Merced County, San Joaquin County, Stanislas County, Tulare County, Riverside County, and San Bernadino County. 

So, while a crash isn’t imminent, the market outlook isn’t pristine. California is still a seller’s market and is facing some serious issues. 

Forecast for The U.S. Housing Market 

Now that we’ve looked at California’s housing market, let’s zoom out a little bit. What about the U.S. housing market? What do you need to keep an eye on in the coming years? 

The United States’s current median existing-home sale price is around $384,500 per the National Association of Realtors. The inventory, though, remains low. A balanced market typically has a 5-to-6-month supply, but the current figure is 2.9. 

We’re currently in a seller’s market with buyers looking at continued rising house prices. The same trend can be seen with renters. Housing continues to appreciate, in general.  

Dr. Lawrence Yun, Chief Economist and Senior Vice President of Research, National Association of Realtors, believes the housing market will appreciate 15 to 25% over the next five years. He thinks that the seller’s market will continue because housing inventory will remain low. In five years, however, he predicts a more balanced market, in which neither party has a built-in advantage. Thus, the market will shift to a case-by-case basis to determine what kinds of deals people can get. 

Hybrid work also impacts the housing market. This shift in work culture means suburbia will continue to grow. States like Texas, the Carolinas, Tennessee, and Florida should see continual growth. 

The number of single-family homes built decreased over the past couple years while the number of multi-family homes increased due to lower prices and a demand for affordable housing. Higher mortgage rates and inflation (affecting price of materials) were the main causes.  

California Rental Market 

The rental and buying market are obviously closely linked. When home prices fall, landlords are more likely to buy properties to rent out. Home prices and rental prices are correlated as well because a hot market means prices rise.  

Rents were more unaffordable than ever in 2021 and 2022. In 2022, 22.4 million households paying rent said it was unaffordable, which is the highest that figure has ever been, according to a January report from the Joint Center for Housing Studies at Harvard University. The study found that half of all renters in the United States spent over 30% of their income on rent and utilities.  

The markets cooled in 2023, though, due to new units and decelerating demand. But a serious problem persists: Rent increases are still outpacing income gains.  

Moreover, high interest rates are keeping borrowing and transaction activity down. Over half the banks surveyed by the Federal Reserve reported that demand for multifamily loans decreased year-over-year. 

The pandemic caused a housing disparity that isn’t going away anytime soon. Unaffordable housing is a serious issue across America. Whether high rents or low income is the main cause doesn’t change the fact that this problem is widespread.  

California’s current rental market is influenced by these trends. Unaffordability extends from high home prices to high rental rates, including in major CA rental markets like Los Angeles and San Diego. Below are just a few of the current trends for California’s rental market based on data pulled from Zillow: 

California Rental Market Key Trends 

• Median rent: $2,800 (note: This is $700 higher than the national median) 

• Month-over-month rent change: +$0 

• Year-over-year rent change: -$175 

• Available rentals: 70,323 

The California rental market, like the housing market, isn’t known for affordability. The fact that the state is subject to rent controls in certain areas also adds another layer. Investors need to be savvy about how they enter and react to the market. That said, the never-ending demand for rentals still makes California a great option for landlords if you approach things carefully. 

As with trends we’ve discussed previously, young renters are leaving CA for states like Texas and Arizona at a high rate. However, 2024 may be a year where things change as mortgage rates lower, and the economy recalibrates a bit. 

Conclusion 

The California housing market in 2024 is marked by a blend of stability, challenges, and expensive prices, making it crucial for potential buyers and sellers to stay informed about market trends. Whether you’re looking to purchase a home soon or sell your property in CA, the macro- and micro- economic trends outlined above will impact your decision-making. Market dynamics like changes in home prices, inventory levels, and interest rates will continue to be critical for stakeholders in local real estate.