California’s inventory of homes available for sale is expanding following the unparalleled contraction due to the pandemic buying spree of 2021.
For-sale inventory in California’s largest metros averages 35% above a year earlier for February 2025, according to data from Zillow.
The number of properties entering the market as available for sale through December 2024 in most counties ranged from 17-38% above a year earlier.
In early 2025, low-tier priced housing has the lowest level of inventory available for sale or rent. No surprise here, as mid- to high-tier pricing is out of range for most of our employed population.
In contrast, wealthy buyers are historically the first to taper acquiring property which builds up excess inventory. Thus, a decline in pricing occurs first in high-tier priced housing followed by mid-tier, then low-tier housing. The wealthy experience a decline in their income before jobholders do, as profits from investments decline before growth in jobholder numbers slow, then peak and eventually drop.
Today’s high price point levels asked by sellers and cyclically high mortgage rates force buyers reliant on mortgage funding to either wait until sellers reduce their price demands significantly or buy cheaper housing.
Compounding the drag on sales volume, mortgaged owners who purchased or refinanced in the past decade are less willing to sell and upgrade when mortgage rates greatly exceed the rate on their present mortgage.
Further, the California real estate recession underway since mid-2022, unless interrupted, will ripple across our economy during the next two or three years. This cyclical decline in real estate transactions – turnover – typically ushers in job and property value losses, and places highly-leveraged property owners in the position of unconventional sellers.
The growth of inventory available for sale has consequences: Prices of property begin to decline as sellers seek to attract a reduced number of willing buyers. Buyers, confronted with swelling choices and declining prices, initially tend to take a wait-and-see approach before they are willing to step up and acquire a property. This buyer retreat ends when buyers perceive prices have reached their bottom and sales activity indicates prices are on the rise.
Looking ahead, expect for-sale inventory to increase in 2025 and beyond until the first drove of speculative buyers enters the market, not likely before mid-2027.
Chart update 3/17/25
| Feb 2025 | Feb 2024 | Annual change | |
| Los Angeles for sale inventory | 19,600 | 14,500 | +35.5% |
| Riverside for sale inventory | 15,200 | 11,400 | +33.5% |
| San Diego for sale inventory | 6,000 | 4,300 | +39.0% |
| San Francisco for sale inventory | 4,700 | 5,100 | +32.5% |
| San Jose for sale inventory | 2,100 | 1,500 | +36.2% |
At some point in 2025 or 2026, the entire real estate market will be firmly in the hands of buyers and tenants; users, not owners. As for real estate agents in property sales and leasing, a steady income from fees in 2025-2027 will require a pivot by agents to include cash-heavy users, whether owners or tenants.
A buyer with the willingness to buy property and ability to use savings to acquire a home has a logic for buying now. The justification for the high price paid for a purchase today, not later, is the offset created by the difference between:
- the mortgage rate on the amount of mortgage borrowed replaced by using the savings to reduce debt; and
- the interest rate on the savings used to purchase the property.
With representation agreements mandated for agents to earn a fee assisting buyers acquiring any type of property, buyer interaction with the gatekeepers is enhanced and confidence in acquiring property will rise to increase sale volume.
Home prices will likely bottom around 2027 as the current ripple effects of the pandemic stimulus and government chaos settle down. Expect the next upturn in pricing to arrive around 2027, maybe 2028. As always, a timeline is complicated by disruptions in jobs and attitudes brought on by abnormal shifts in economics due to international relationships and the vicissitudes of government action.
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The cure for the inventory shortage
California’s long-standing inventory imbalance and resulting housing crisis of low-tier availability has two reasonable bases for resolution:
- decreased demand, via an increase in the number of occupants per existing dwelling or parcel of real estate; and
- construction of residential units, enforced and funded by state programs for low-tier priced housing necessary to support the state’s economy
The years beyond 2025 will see a bit of both.
Residential construction is due to increase, soon.
Homeownership and rental vacancies are below normal rates for the present level of household income in California. This occupancy stress is due to local and state inability to permit new construction of housing units sufficient to house individuals employed in a community.
To that end, several pieces of new legislation since 2017 focus on the construction of more dwellings in communities in California. However, only a few inclusive communities willing to deliver long-term housing policy have addressed the permitting issue with a positive reaction. Some coastal communities are being judicially forced to allow permits for additional low-tier housing.
Unless a community permits low-tier housing starts, the community will need rent control ordinances to house those families employed locally. It’s rather one or the other, as coastal communities have discovered.
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Carrie –
With all due respect, the low housing inventory has little to do with interest rates. In past years, interest rates have been as high as 10% without having this kind of impact on sellers reluctance to sell their homes. The real culprit is capital gains tax. The federal government has failed to adjust the exemption amount in over 25 years. People don’t want to pay a huge tax bill just for selling their home. Email me if you would like more info.