The Anticipated Upswing of California's Housing Market in 2026

California's Housing Market Forecast for 2026

The California Association of Realtors (C.A.R.) has recently released its much-anticipated forecast for the 2026 housing market, outlining a gradual recovery from the stagnant conditions observed in 2025. With improvements in housing affordability, home sales are projected to experience a modest increase, marking a hopeful trend for potential buyers and investors alike.

Projected Sales and Price Increases

According to the C.A.R., the total sales of existing single-family homes in California is expected to rise by 2% in 2026, reaching approximately 274,400 units, compared to the 269,000 units forecasted for 2025. This uptick follows a slight decline in the previous years, signaling a renewal of buyer interest and market stability.

Additionally, the median home price is forecast to jump by 3.6%, setting a new high at $905,000 in 2026. This upward movement is particularly interesting, given the previous year's projected increase of only 1% to $873,900, which itself followed a rise from $865,400 in 2024. These price increments reflect a combination of low-interest rates and an improved affordability situation, though they will remain comparatively tempered compared to historical growth rates seen in the housing market.

Improving Affordability

One of the highlights of the C.A.R.'s forecast is the anticipated improvement in housing affordability. The percentage of households capable of affording a median-priced home is projected to edge up to 18% in 2026, compared to 17% in 2025 and 16% in 2024. This gradual increase signals a favorable shift, as more potential buyers could find opportunities to enter the housing market.

Heather Ozur, President of C.A.R., noted, "Home prices in California are expected to rise in 2026, but at a much slower pace than what we’ve historically seen. For those who have been waiting for a better time to buy, this could represent a window of opportunity as inventory becomes somewhat more accessible and lending conditions become more favorable."

Economic Conditions and Job Growth

The broader economic outlook will also play a crucial role in shaping housing trends. The C.A.R. forecast anticipates a slightly slower growth rate for the U.S. Gross Domestic Product (GDP) of about 1% in 2026, following a higher growth rate of 1.3% in 2025. Moreover, California's non-farm job growth is expected to rise by 0.3%, marginally lower than the previously projected 0.4% for 2025. This stability in employment is critical, as it directly impacts consumers’ income and, consequently, their buying power in the housing market.

Interest Rates and Inflation

Another significant factor contributing to the housing market dynamics is the interest rates. The anticipated average for the 30-year fixed mortgage interest rate is set to slightly ease to 6.0% in 2026, down from 6.6% in 2025. Even though these rates remain higher than pre-pandemic levels, the decreasing trend will provide buyers with improved financing options moving forward.

Inflation is expected to experience fluctuations, with the average Consumer Price Index (CPI) estimated to dip to 2.8% in 2025 before rising to 3.0% in 2026. These shifts in economic conditions are critical for understanding how consumers plan their investments in real estate.

Housing Supply Trends

Moreover, the housing supply is projected to continue its recovery, with active listings anticipated to increase by nearly 10%. This improvement is pivotal as it reflects an environment more conducive to purchasing and less competitive than in recent years.

Jordan Levine, Senior Vice President and Chief Economist at C.A.R., stated, "As the economic uncertainties begin to fade over the next year and mortgage rates trend downward consistently, we can expect to see housing sentiment improve. However, challenges such as trade tensions, the home insurance crisis, and potential stock market volatility will pose ongoing risks to market stability."

Conclusion

In conclusion, while the 2026 housing market forecast for California indicates a positive turnaround, it comes with a caveat of caution. Buyers and investors are advised to keep a close watch on the evolving economic landscape and adjust their strategies accordingly. As opportunities arise amidst these changing dynamics, a cautious yet optimistic approach may be the key to navigating California's complex housing market effectively.