California’s ailing housing market could get a bit healthier in 2026, thanks to cuts in mortgage rates that will make buying a home a little more affordable for shoppers.
Annual sales of existing single-family homes are expected to reach 274,000, a 2% increase compared to the projected sales for this year, according to the California Association of Realtors. The current year has been disappointing, with sales projected to slip 1% compared to 2024.
But buyers, who often battled competition and entered bidding wars just a few years ago, have now gained the upper hand. The buyer’s market will likely continue as more homes become available and the economy slows, housing officials say.
And home sellers, who have enjoyed big gains in recent years, will still have rock-solid paydays.
CAR forecasts the state’s median home price – meaning half the homes sell for more, the other half for less – to improve 3.6% to $905,000 in 2026, modest but better than the 1% increase projected for this year.
‘DEMAND BEGINS TO RISE AGAIN’
CAR announced its closely watched and much-anticipated annual forecast Wednesday (Sept. 17), hours before the Federal Reserve announced an expected quarter-point cut and the likelihood of two more rate reductions by the end of the year.
“Home prices in California are expected to rise in 2026, but the growth pace will remain mild when compared to rates we’ve seen in past years,” said CAR president Heather Ozur, a Palm Springs-area REALTOR. “For would-be buyers who sat out the competitive market during the past couple of years, that means more opportunities as inventory increases moderately, and lending conditions become more favorable. Seller confidence will also improve as home prices stabilize, and demand begins to rise again next year after a slow 2025.”
CAR forecast for 2026 …
Sales: 274,400 homes, a 2% increase compared to this year. If reached, it would be the most homes sold since 2022.
Prices: $905,000, up 3.6% from the projected price this year. A dramatic decline from the 19% in 2021.
While affordability will improve with cuts to mortgage rates, which reached a three-year low earlier this week, fewer than one of every five households are able to purchase, according to CAR. Affordability should inch up to 18%, compared to 17% this year and 16% in 2024.
Affordability is in the low teens along the Central Coast and Southern California.
MORE HOMES, SAME RISKS
The housing supply – the number of homes on the market – should continue to improve, increasing 10% in 2026.
Mortgage cuts and small price gains will certainly help, but the sputtering economy could stall the market. CAR expects economic growth of a paltry 1% and the statewide jobless rate to reach 5.8%, compared to 5.6% this year.
“Mounting headwinds, such as the ongoing trade tensions between the U.S. and its trading partners, the home insurance crisis, and potential stock market bubble will remain challenges for the housing market in the upcoming year,” said CAR chief economist Jordan Levine.
But mortgage rates are front and center for many home shoppers. And cuts to long-term mortgage rates could disappoint, at least for now.
“Mortgage rates may not decline, even with the Fed rate cut, if there is high inflation, and also if somehow the Treasury debt issuance becomes large,” said Lawrence Yun, chief economist for the National Association of Realtors. “That’s going to prevent the mortgage rate from meaningfully declining.”
