California Home Prices Are Rising in 2025: Here’s Why

“Will California home prices rise or fall in 2025?”

This is one of the most frequently asked questions among home buyers in the Golden State, and rightfully so.

After a few tumultuous years for the real estate market, home prices in California are now rising steadily in 2025. Forecasts suggest that home values might continue to climb through this year and into 2026.

California Home Prices Are Rising in 2025

Let’s start with the overall theme for this report. Home prices in California are rising gradually at the start of 2025, and experts believe that trend will continue through the rest of this year and into 2026.

According to a January 2025 report from the California Association of REALTORS: “December’s statewide median home price was $861,020, up 1.0 percent from November and up 5.0 percent from $819,820 in December 2023.”

This means that home prices statewide rose by around 1% during 2024.

The group also issued a market forecast that’s essentially a heads-up for home buyers:

The acceleration in price growth is an indication that further price gain could still be observed in the coming months. Home prices are expected to moderate further in the next couple of months if they follow the seasonal trend but should continue to grow year-over-year by low single digits in the first quarter of 2025 before the spring homebuying season kicks off.

What they’re saying here is that home prices in California will likely rise at a gradual pace over the coming months. If that turns out to be true, those buyers who postpone their purchases until later this year could pay a price for it.

Home Price Trends for the Last 5 Years

By reviewing and understanding real estate trends over the past few years, we can gain a better sense of what might happen in the near future.

With that in mind, here’s a summary of California home prices from 2020 to 2025:

1. Home price growth accelerated in summer 2020, due to a pandemic-fueled surge in home buying activity.
2. The above-mentioned surge in prices continued for nearly two years, before hitting a peak in July of 2022.
3. As the market cooled in 2022, home prices began to decline and would continue falling for nine months.
4. House values hit “bottom” in April of 2023, rebounded, and rose steadily all the way into early 2025.
5. As of February 2025, the median price in California was at an all-time high of $773,000 (source: Zillow).

What’s Causing Them to Rise?

House values can be influenced by many different factors, but they’re mostly driven by supply and demand. And the main reason why California home prices are rising again in 2025 can be summed up in a single sentence:

There aren’t nearly enough properties on the market to satisfy the demand from buyers, and that’s putting upward pressure on prices.

1. Low Housing Inventory

A persistent shortage of homes for sale is one of the biggest drivers of rising prices. Many homeowners in California are hesitant to sell due to their ultra-low mortgage rates, keeping inventory tight and creating competition among buyers.

That’s just one reason for the ongoing housing shortage in California. Other factors play into this as well, including the high cost of land, labor, and materials. The short version is that limited housing supply increases competition and puts upward pressure on home prices, as we are seeing in 2025.

2. High Demand Despite Affordability Challenges

Higher mortgage rates have reduced affordability in 2025. Even so, demand remains strong in many parts of California, particularly in major metro areas like Los Angeles, San Diego, and the Bay Area. A combination of high-income buyers, foreign investment, and a growing population keeps demand elevated while boosting prices.

3. Strong Job Market & High Wages

California’s enormous economy continues to support high-income jobs, especially in the tech, entertainment, and healthcare industries. So, while affordability problems continue to plague the state, there are still many buyers in the market with the financial means to purchase a home.

4. Limited New Construction

Strict zoning laws, regulatory hurdles, and high construction costs make it difficult to build new homes in California. This is especially true in desirable coastal areas, which typically have the highest demand from buyers. This supply constraint contributes to rising home values over time.

5. Investor Activity

Institutional and individual investors continue to buy homes in California, both as long-term rental properties and short-term vacation rentals. This further reduces the available inventory for traditional buyers, increasing competition and home prices alike.

6. Pent-Up Buyer Demand

Some buyers who delayed their home purchases in 2023 and 2024 due to higher mortgage rates have returned to the market, creating a wave of demand that is expected to push prices higher.

7. Migration Patterns

While some Californians have moved out of state, affluent buyers from other parts of the country (or foreign investors) continue to purchase homes in sought-after areas, sustaining demand.

8. Fear of Being Priced Out

Human psychology also plays a role in all of this. Many buyers believe that home values will continue rising, motivating them to act sooner rather than later. This behavior reinforces upward price trends.

The Main Reason: A Lack of Inventory

In some parts of California, housing market inventory has increased over the past years — but only slightly. In other areas, supply levels have either remained the same or declined over the past 12 months.

Translation: California’s housing market inventory shortage will continue in 2025.

But we might see some relief over the coming months, in terms of housing market supply. According to a January 2025 report from the California Association of REALTORS®:

“With market activity likely to slow in the coming months as mortgage rates spike back up to the highest levels in months, housing inventory at the statewide level could inch up further in the first quarter [of 2025].”

House Values Could Continue Climbing Into 2026

So how might this play out over the coming months? What’s the home-price outlook for California through this year and into 2026?

It’s difficult (if not impossible) to predict future real estate market trends with complete accuracy. But many housing analysts expect the current supply-and-demand imbalance to continue for the foreseeable future.

Based on that outlook, it seems likely that home prices in California will keep rising throughout 2025.

It’s also worth mentioning that residential real estate in California tends to hold its value well over the long term, despite some occasional dips.

Over the past 50 years, house values in the Golden State have really only experienced one significant and sustained downturn. It occurred during the Great Recession of 2008. By comparison, the slight decline from 2022 to 2023 is hardly worth mentioning.