The economy and job growth are bigger worries than the lure of lower mortgage rates in January
California home prices dropped to an almost two-year low in January, as potential buyers were more concerned about a dismal economy than enticed by falling mortgage rates.
Home sales plummeted almost 11% from December to the lowest level since May 2025, the latest evidence of a floundering market, according to the California Association of Realtors.
The one-two combo of disappointing figures starts the “new year on a softer footing, with both sales and prices coming in below last year’s levels,” said CAR president Tamara Suminski, a Southern California broker and REALTOR. “However, as mortgage rates ease toward recent lows and housing supply is expected to improve in the coming weeks, we anticipate momentum to build as the market heads into the spring homebuying season.”
40 MONTHS OF SALES BELOW 300,000
Maybe. But as more consumers are concerned about the economy and their jobs, the housing market could remain cool.
A seasonally adjusted annualized rate of 256,550 homes sold in January, a 10.8% tumble from December – and off 1.3% from a year ago. Home sales have been below the 300,000 level, considered the bare minimum for a healthy market, for 40 straight months.
Month-to-month sales were brutal, including a 40% plummet in the Bay Area. Sales tumbled more than 30% on the Central Coast and in the Central Valley.
The Far North, which includes Redding, had sales increase 20% in January compared to a year ago. SHUTTERSTOCK
Six of the eight regions endured annual sales declines, with the Bay Area and Central Valley off at least 7%. The Far North – from about Chico to the Oregon border – was the best-performing market in the state at 20%.
LARGEST PRICE DROP SINCE JUNE 2023
With few buyers and little competition coupled with such a significant drop in sales, home prices plunged to $823,180 in January, a 10.8% drop compared to December and off 3.2% from a year ago. The annual decline was almost double the long-run average of 1.7%, according to CAR.
The annual price has declined for the third time in the past four months, and the largest drop since June 2023.
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“California’s housing market pulled back in January as heightened policy uncertainty and geopolitical tensions contributed to increased volatility in mortgage rates early in the (month),” said Jordan Levine, chief economist for CAR. “More recent economic indicators, however, suggest that the broader economy is beginning to stabilize, which should help restore confidence among both buyers and sellers. With pending home sales posting a solid gain last month, we anticipate a rebound in housing market activity in February.”
SMALLER DOWN PAYMENTS
Perhaps, but the economy is facing some headwinds.
Affordability is a critical issue for many, with fewer than one of every five households able to afford the median-priced home in California. And job-growth has stalled, as companies embrace a no hire, no fire approach with their workforces, said Heather Long, chief economist for the Navy Federal Credit Union on Marketplace.
With the economic uncertainty, consumers willing to buy a home are lowering their price range – and the down payment, according to a recent Redfin report. The average down payment in California has dipped to 20%, about 5 percentage points lower than a year ago.
“Down payments may be falling in part because Americans are seeking out more affordable homes due to high prices, elevated mortgage rates (compared to a few years ago) and economic uncertainty,” said Redfin principal economist Sheharyar Bokhari.
Blame the disappointing jobs market more than the other issues, said Mike Simonsen, chief economist for Compass.
“We have jobs, but we’re afraid of finding another job,” he said. “That’s showing up in a lot of areas.”
Home prices and sales in January compared to a year ago
| Region | Median home price | % gain or loss vs. a year ago | Home sales vs. a year ago |
|---|---|---|---|
| California | $823,180 | -1.9% | -1.3% |
| Bay Area | $1.13 million | +0.2% | -7.0% |
| Central Coast | $1.09 million | +2.9% | -5.0% |
| Central Valley | $480,000 | No change | -7.6% |
| Far North | $379,950 | -5.0% | +19.8% |
| Inland Empire | $595,000 | -0.8% | +0.7% |
| Los Angeles | $808,000 | -1.5% | -4.0% |
| Southern California | $845,530 | -0.6% | -4.4% |
Source: California Association of Realtors
