California’s beleaguered real estate industry will get some relief next year, with house sales projected to increase 10% to 304,400 transactions in 2025, the California Association of Realtors predicted on Wednesday, Sept. 25.
But even if the forecast proves accurate, next year will still be the third-slowest year since the Reagan administration. The only two years that would be slower are 2023 and 2024, when sales plunged to fewer than 276,000, well below the state’s average of more than 400,000 transactions per year.
House prices, meanwhile, are expected to continue rising next year, but at a slightly slower pace than in 2024.
CAR economists predicted the median price, or price at the mid-point of all sales, will rise almost 5% to a record high of $909,400. If accurate, house prices will have nearly doubled in the past 10 years.
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“An increase in homes for sale, along with lower borrowing costs, is expected to encourage more buyers and sellers to enter the market in 2025,” CAR President Melanie Barker said in a statement. “Demand will grow as we start the year with the lowest interest rates in more than two years.”
CAR also predicted that 30-year mortgage rates will drop to an average of 5.9% next year, down from 6.6% this year.
Lower mortgage rates will encourage many “locked-in” homeowners — reluctant to give up low payments received during the pandemic — to put their properties up for sale, Barker predicted. That will give sellers “more flexibility to pursue a home that better suits their needs,” Barker said.
But more homes for sale won’t translate into falling prices, said CAR Chief Economist Jordan Levine.
“Although (for-sale) inventory is expected to loosen as rates ease, demand will also increase with lower mortgage rates and limited housing supply,” Levine said. “The housing shortage will keep the market competitive, … so prices will still rise.”
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Existing house prices have gone up in 12 of the past 13 years, CAR figures show.
But the sales drop of the past two years have taken a toll on the housing industry, with agents, mortgage brokers, escrow officers and home inspectors all affected by a slowdown in house sales.
CAR foresees a cooler economy in 2025, but no recession.
US gross domestic product will slip to 1.1% in 2025, compared with this year’s projected increase of 1.9%, according to the forecast.
Unemployment will inch up further with jobs growing at a 1.1% rate, vs. a projected 1.5% this year. But inflation is expected to fall to the Federal Reserve’s target of 2%, down from 2.9% this year.
A “soft landing (is) looking more and more likely,” the forecast said.
