For California real estate professionals, the mid-2025 market is a story of critical divergences that demand close attention. While existing home prices are hitting all-time records and sales are up due to inventory rising for the first time in nearly a decade, the new-build pipeline faces significant hurdles.
The primary challenge is on the supply side. Citing uncertainty over tariffs and high material costs, home builder sentiment is pessimistic, driving new housing permits down to their lowest levels since 2015. This suggests that while large-scale residential projects like Silverwood in Hesperia and Related Bristol in Santa Ana are proceeding, the broader flow of new single-family inventory may remain constrained. However, a potential bright spot for buyers is the forecast for one or two Federal Reserve rate cuts before year-end, which could provide much-needed mortgage rate relief and boost demand.
Broader economic trends are shaping the client landscape. While the state is expected to avoid a recession, it faces a major budget deficit, and the job market is shifting dramatically. Healthcare is the main sector adding jobs, while the tech industry has seen significant layoffs due to the adoption of AI. This employment shift could influence buyer demographics and demand across different regions.
On the commercial side, the office market remains weak but is finally showing signs of a turnaround in utilization in key markets like Orange County and San Diego County.
The Takeaway for Agents: The current market requires educating clients on a complex picture. The key opportunities lie with the rising inventory of existing homes and potential rate cuts. The primary challenge is the scarcity of new construction, which will likely keep upward pressure on prices for the foreseeable future.
Source: Analysis inspired by “The Economic Outlook for California at Mid-Year” (June 2025) by Mark Schniepp, California Economic Forecast.
