The rich are buying while many everyday folks are waiting as California home prices hit a record in May

Lower mortgage rates lured a few more buyers and increased sales, but activity remains sluggish

California’s home prices reached a record in May, as higher-priced properties – some selling for $2 million or more – are a larger percentage of the market.

Home sales, mired in an almost four-year slump, had a better-than-expected performance thanks largely to a dip in mortgage rates during the past month. But the ever-important mortgage rates have inched higher in recent weeks after the latest inflation report that could lead to the Federal Reserve raising rates in the following months.

A seasonally adjusted annualized rate of 268,800 homes sold in May, a down 3.1% from April but up 5.1% from a year ago, according to the California Association of Realtors. Home sales have increased a modest 1.2% for the first five months of the year compared to the same stretch in 2025.

Better but far from good

But sales remained below the 300,000-home threshold – considered the minimum for a healthy housing market – for the 44^th-straight month. The Bay Area and the Central Coast, from Santa Barbara to Santa Cruz, had the largest annual sales gains at 5.5% and 21.4%, respectively.

The Bay Area has enjoyed a dramatic boost in home prices and sales with the incredible wealth generated from AI companies that will only increase with the IPOs of Anthropic and OpenAI expected in the next several months. The Bay Area, as always, was the most expensive region at $1.45 million, with three counties – San Francisco, San Mateo and Santa Clara – topping $2 million.

“California’s home sales softened in May as broader economic uncertainty continued to weigh on consumer confidence and homebuying sentiment,” said CAR president Tamara Suminski, a Southern California broker. “Even so, the recent easing in mortgage rates is an encouraging development, and if that trend continues, it could help bring more buyers and sellers back into the market and support a gradual improvement in housing conditions beginning in the third quarter.”

Almost 40% of homes sold in May topped $1 million

Maybe. But affordability is the biggest concern among everyday buyers, with fewer than one of every five households able to buy the median-priced home in the state. And in some housing markets, such as the Central Coast and Los Angeles, affordability has dropped into the teens.

The median-home price reaching a record $930,260 in May, a 2.3% increase from April and up 3.1% from a year ago, won’t help cash-strapped buyers pinching dollars to save for a down payment. In some cases, buyers need to save 15% of their annual income for more than a decade to purchase in California, according to the National Association of Realtors.

Before buyers become too discouraged, there are some factors skewing the record-setting prices – and the largest annual price gain since March 2025. 

More high-end homes are selling, with an 8% increase in $1 million-$2 million from a year ago, and a head-turning 8.5% jump in $2 million-plus transactions. Almost two of every five (38.5%) of homes sold in May topped $1 million, according to CAR. 

In comparison, homes selling for less than $1 million declined 3.4% from a year ago. 

Basically, higher-income and move-up buyers are fueling the market and the record prices. A tight housing supply, down 10.5% from a year ago, has also been a challenge. Plus, some home sellers tired of waiting on buyers or getting what they consider viable offers, are pulling their homes off the market, according to Redfin. 

“Housing supply has remained constrained in recent months as the lock-in effect continued to put many would-be sellers on the sidelines, intensifying competition and placing upward pressure on home prices,” said CAR chief economist Jordan Levine. “While the statewide median home price typically reaches its seasonal peak in May, the recent easing of tensions in the Middle East could bring more buyers back into the market and keep price pressures up at the start of the third quarter.”