Southern California Housing Market Shows Signs of Cooling in Early 2025
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Jan 2025 Year over Year % Price Change by County and Sales Tier shows Orange County the only hot market. LA County down for starters and luxury, but up slightly in mid tier. SD County down substantially for starters, otherwise flat. |
Southern California Housing Market Shows Signs of Cooling in Early 2025
Southern California's once-hot housing market appears to be cooling off as the new year begins, with prices weakening across most of the region according to recent data from First American Data & Analytics.
Price Drops Across the Region
Home prices in most Southern California counties showed declines in January 2025, marking the most significant price drops in nearly two years. Los Angeles County led the downturn with prices falling 1.9% year-over-year, the worst decline in 22 months. San Diego County experienced a 0.9% annual drop, its worst performance in 20 months, while Inland Empire prices remained flat, their weakest showing in 19 months.
Orange County was the sole bright spot in the region, with prices rising 4.4% compared to January 2024, though this still represents Orange County's smallest gain in 18 months. The increase was consistent across all price segments, with starter homes up 4%, and both mid-tier and luxury properties rising 4.5%.
Starter Homes Hit Hardest
Lower-priced homes have taken the brunt of the market slowdown. In Los Angeles County, starter homes saw a 1.5% price decline, compared to a 0.8% increase for mid-tier properties and a 1.1% drop for luxury homes. San Diego County's starter homes fell 2.4%, while mid-tier prices remained flat and luxury homes saw a modest 0.3% increase.
Market Forces at Play
According to Mark Fleming, chief economist at First American, "National house price growth slipped to the slowest pace since June 2023 amid elevated mortgage rates and rising inventories." Fleming noted that high mortgage rates continue to reduce buying power for potential purchasers, while inventory levels are rising as sellers adjust to the reality of "higher-for-longer" rates.
The softening comes despite the Federal Reserve beginning to lower interest rates in late 2024, as mortgage rates have remained stubbornly high. The slowdown contrasts with stronger markets elsewhere in the country, with Pittsburgh showing a 10% annual price gain according to First American's study of 30 U.S. markets.
Despite the recent cooling, housing affordability remains a significant challenge for many Southern Californians. Over the past five years, home prices have surged by 61% in Orange County and San Diego, 59% in the Inland Empire, and 39% in Los Angeles County.
Analysts suggest that continued economic uncertainty and concerns about job security, despite record employment numbers in the region, may be contributing to buyer hesitation in the Southern California market as 2025 unfolds.
San Diego Housing Market: A Closer Look
Price Reversal After Strong 2024
San Diego's housing market has hit a turning point in early 2025, with prices declining 0.9% year-over-year in January. This marks a significant shift from the robust 10.6% annual gain recorded in January 2024. The current decline represents the market's worst performance in 20 months, following a 2% annual rise as recently as December.
Price Tiers Show Varying Impact
The cooling market isn't affecting all properties equally:
- -Starter Homes**: Down 2.4% (showing the steepest decline)
- - Mid-Tier Properties**: Prices holding steady with no change
- - Luxury Segment**: Maintaining slight growth at 0.4%
This pattern suggests first-time homebuyers and those in lower price brackets are feeling the most pressure from current market conditions.
Migration Patterns Affecting Demand
San Diego continues to experience significant outflow of residents. According to Redfin migration data, San Diego ranks high among metros that homebuyers are searching to leave. This ongoing exodus may be contributing to the softening demand, particularly in the lower price tiers.
Inventory Rising
The number of homes for sale in the broader California market increased by 22.3% in January 2025 compared to the previous year, giving buyers more options and reducing the competitive pressure that drove prices upward throughout 2024.
Looking Ahead
Despite the recent cooling, San Diego's home prices remain 61% higher than pre-pandemic levels. With mortgage rates still elevated around 7% and inventory continuing to climb, experts suggest the San Diego market may continue to favor buyers in the coming months, potentially offering more negotiating power than at any point since early 2023.
Looking at the data from First American Data & Analytics, the Inland Empire is showing some interesting trends that differ from other parts of Southern California:
Inland Empire Housing Market Trends
The Inland Empire housing market has flattened, showing 0% year-over-year price change in January 2025, its weakest performance in 19 months. This compares to the 1.7% annual price increase recorded in December 2024 and a much stronger 6.7% rise in January 2024.
Price Tier Breakdown
Unlike Los Angeles and San Diego counties where starter homes are experiencing the steepest declines, the Inland Empire shows a more mixed pattern across price tiers:
- - **Starter Homes**: +0.9% year-over-year (showing modest growth unlike other regions)
- - **Mid-Tier**: 0.0% (flat performance)
- - **Luxury Homes**: +2.2% (relatively strong performance)
Market Context
The Inland Empire has historically been an affordable alternative to the coastal markets of Los Angeles and Orange County. This relative affordability may be helping to buffer its starter home segment from the declines seen in other areas.
According to the California Association of Realtors data, the Inland Empire's median home price was around $594,950 in December 2024, significantly lower than Orange County and other coastal areas. This price point continues to attract buyers who are priced out of more expensive coastal markets.
Future Outlook
The flattening growth in the Inland Empire suggests that even this traditionally more affordable region is beginning to feel the impact of elevated mortgage rates and economic uncertainty. However, the region's continued positive performance in starter homes compared to other Southern California markets may indicate that it remains a viable option for first-time homebuyers and those seeking more affordable housing options, even in a cooling market.
Southern California home prices begin to drop – San Diego Union-Tribune
Home prices weakened across Southern California as 2025 started, with only one local market – Orange County – showing rising prices in January.
My trusty spreadsheet examined intriguing indexes from First American Data & Analytics, which tracks four local housing markets. These yardsticks follow overall pricing patterns for single-family homes, dividing each market into cost buckets: the most affordable starter homes, mid-tier residences and high-end luxury.
Orange County’s 4.4% price rise for the 12 months ended in January was still its smallest gain in 18 months. Prices rose 6% annually in December and 11.3% in January 2024.
The O.C. gain was consistent across the price slices in January: 4% annual gain for starter homes, 4.5% mid-tier increase, and 4.5% luxury rise.
House hunters got better news in Los Angeles County, where home prices were down 1.9% overall for the 12 months—the worst drop in 22 months. That was a growing decline compared to the 0.2% one-year dip in December and a far different pricing tale than the 7.1% annual gain from January 2024.
Looking at L.A. by January’s price slices, the low-end had the most significant cuts with a 1.5% price decline in starter homes vs. a 0.8% mid-tier increase and a 1.1% luxury dip.
Another dip was found in San Diego County, where prices were off at a 0.9% annual rate in January – worst in 20 months – vs. a 2% one-year rise for December and 10.6% above a year ago.
Starter homes also took the most significant cuts in San Diego, down 2.4% in a year vs. a flat mid-tier and a 0.4% luxury rise.
Abd Inland Empire prices were flat in a year for January – worst in 19 months – compared to 1.7% annual hikes as of December and a 6.7% rise in January 2024. By price slice, January had an 0.9% starter gain, flat mid-tier, and 2.2% luxury rise.
What’s up, or not?
As 2025 unfolded, local sellers found themselves in the weakest spot since early 2023.
That was when the Federal Reserve’s end of its pandemic-era cheap money policy was scaring off house hunters. By price slice, the lower end had the meekest pricing strength in January, a reminder that the region’s affordability challenges remain steep.
Curiously, this latest pricing softness follows another Fed switch – ending its interest rate hikes. Late last year, the central bank lowered short-term rates, but those cuts did not stop increasing mortgage rates.
Remember, you need a solid paycheck or two to be a Southern California buyer. As 2024 ended, the region had a record number of workers, but hiring decisions were mixed by industry.
That uncertainty increased worries about job security, which is not a positive for house hunting.
Bottom line
The First American study tracks 30 U.S. markets – and Southern California decidedly underperformed in January.
Collectively, 20 markets had one-year price gains, eight had declines, and two were unchanged.
Yes, Orange County had the fourth-biggest gain among the 30. However, the other three local markets were in the bottom 10 – Inland Empire, No. 21, San Diego, No. 26, and Los Angeles, No. 28.
The 30 markets’ biggest gain overall was in Pittsburgh, up 10% in a year. The most significant price drops were in Oakland and Tampa, off 3.8%.
Nevertheless, 2025’s early price weakness doesn’t dent house hunter’s immense hurdles: Prices in five years are up 61% in Orange County and San Diego, 59% in the Inland Empire, and 39% in L.A.
Jonathan Lansner is the business columnist for the Southern California News Group. He can be reached at jlansner@scng.com
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High mortgage rates continue to be a drag on home sales and home prices in California, according to the California Association of Realtors, which just released its final numbers for 2024.
Data shows that sales of single-family homes increased by roughly 4% year-over-year, marking the first annual increase in three years. Still, the volume of sales remained well below historical norms.
“Sales are still pretty weak,” said Guillermo Flores, senior research analyst at the association. “Sales have been below 400,000 per month for 31 months in a row.”
As of Monday, the average 30-year fixed-rate mortgage was 7%, three times higher than the record lows seen during the COVID-19 pandemic. The hope that rates would drop in the near-term, experts say, has faded as the Federal Reserve still grapples with inflation and is slow to lower interest rates.
“The question marks have shifted to being more about the economy, how it’s going to hold up, what’s going to happen with inflation,” said Jordan Levine, the association’s chief economist. “I think the macro (issues) are going to have an impact on the regional housing market.”
In terms of prices, the median single-family home in California was $861,020 in December, only $9,000 more than in December 2023. For comparison, the median price in May was $908,000.
Price growth, CAR said, is stalling.
“The (price) gain recorded last month was smaller than the six-month moving average between May 2024 and October 2024,” said Oscar Wei, CAR’s deputy chief economist. “The deceleration … is an indication that further softening in home prices could be forthcoming.”
The San Francisco Bay Area continues to see the highest median home prices in the state, finishing the year at $1.2 million, followed by the Central Coast at $995,000 and Southern California at $850,000.
| Region/County | Dec-24 | Nov-24 | Dec-23 | Price YTY% Chg | Sales YTY% Chg |
|---|---|---|---|---|---|
| California Single-Family Homes | $861,020 | $852,880 | $819,820 | 5.0% | 19.8% |
| CA Condo/Townhomes | $664,550 | $675,000 | $635,000 | 4.7% | 21.3% |
| Los Angeles Metropolitan Area | $815,500 | $822,000 | $760,000 | 7.3% | 14.2% |
| Central Coast | $995,000 | $1,030,000 | $979,500 | 1.6% | 20.5% |
| Central Valley | $492,000 | $495,000 | $462,000 | 6.5% | 15.1% |
| Far North | $369,500 | $375,000 | $364,500 | 1.4% | 6.3% |
| Inland Empire | $594,950 | $600,000 | $570,000 | 4.4% | 7.3% |
| S.F. Bay Area | $1,200,000 | $1,316,500 | $1,182,000 | 1.5% | 14.6% |
| Southern California | $850,000 | $850,000 | $790,000 | 7.6% | 16.3% |
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