Welcome to the latest market update from Lantzman Lending, where we track the economic currents shaping California’s real estate landscape. As we step into 2025, we’re witnessing a seismic shift both politically and economically — one that could have profound implications for investors and borrowers alike. In February, the markets have braced for impact as Tropical Storm Trump made landfall, ushering in a new political era following a decisive Republican sweep of the White House, Senate, and the House. With leadership changes come policy shifts, and investors are anxiously watching the markets, and this is beginning to show in the bond markets. Leading up to the recent government transition we have had a turbulent few years with significant inflation and mortgage rates that have fluctuated massively. However, amid all these macroeconomic changes, California’s residential real estate market has shown remarkable resilience. Home prices remain on the upswing in the year over year numbers, with the statewide median price reaching $838,850—up 6.3% from last year. Though we have seen a sizable seasonal slowdown as of late, this is very normal for this time of year, and we are expecting home prices to recover in spring. The story varies a bit by region, but across the board throughout California, we have seen year over year growth (see graph below). In general, supply remains constrained, with the Unsold Inventory Index at 4.1 months in January, up from 3.2 months last year, reflecting a mild improvement that gives buyers slightly more negotiating power, as we start to reach a more normalized real estate market from an inventory standpoint. With inventory and marketing times creeping up, we encourage investors to stay vigilant…
The data table below provides valuable insights into California’s residential real estate market, highlighting changes in median home prices and sales volume across different regions. Statewide, single-family home prices fell 2.6% month-over-month (MTM) but are up 6.3% year-over-year (YTY), indicating a typical seasonal slowdown but sustained annual growth. The San Francisco Bay Area saw the largest monthly decline (-6.3% MTM), while the Far North region posted the highest annual appreciation (10.7% YTY). Southern California and Los Angeles continue to show resilience, with 7.7% and 9.3% YTY price growth, respectively. However, sales activity remains sluggish, with double-digit declines in month-over-month sales across all regions. Despite this, some areas—like the Central Coast (+8.3% YTY sales growth)—are seeing increased demand, suggesting that regional factors significantly influence market dynamics.
Graph from Car.org
Another crucial factor shaping California’s housing market, and a market we watch closely, is conventional mortgage rates. The average 30-year fixed rate stands around 6.9%, up from approximately 6.6% a year earlier. Although rates have retreated slightly from their late-2024 peak, they remain significantly higher than the rock-bottom levels of the pandemic era. This rise in borrowing costs has directly impacted affordability and moderated buyer enthusiasm, especially for first-time buyers facing higher monthly payments. Mortgage origination volume has remained subdued, with refinance activity at historic lows and purchase loans trending below pre-pandemic levels. Nonetheless, the Mortgage Bankers Association projects a rise in overall U.S. mortgage originations in 2025, indicating that relief could be on the horizon if rates continue to recede. However, expectation of rates reductions has tempered with inflation concerns continuing to be a concern.
Inflation in the national economy continues to play a significant role in shaping real estate conditions. Though consumer price growth has eased from the highs of 2022 when inflation topped out at almost 10%, it remains slightly above the Federal Reserve’s 2% target. As a result, the Fed has maintained higher interest rates to tame inflation which currently sits right around 3%. These elevated Fed rates in turn contribute to elevated mortgage costs and reduced real estate demand. Inflation also affects construction expenses, putting upward pressure on prices for new developments. At the same time, real estate is traditionally seen as a hedge against inflation, as property values and rents often rise along with the cost of living.
For real estate investors, including those working with private lenders like Lantzman Lending, the current environment presents both challenges and opportunities. Steeper financing costs mean that deals must pencil out carefully, yet the dip in competition—compared to the multiple-offer bidding wars of 2021—allows for more favorable negotiations. Investors who maintain strong cash positions or secure private financing might find fewer rival bids on fix-and-flip or buy-and-hold projects.
Overall, the California housing market is in a transition period. Slightly higher inventory levels, longer days on market, and elevated mortgage rates have cooled the record-breaking pace of the past few years. Yet demand remains relatively steady, in part due to chronic undersupply and ongoing interest in California’s high-growth areas. As inflation gradually moderates and the labor market stays healthy, many experts expect a rebound in sales volume. Investors who stay informed and maintain flexibility in their financing strategies will likely be best positioned to navigate—and benefit from—California’s evolving real estate landscape.
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