California Real Estate Update: What’s Cooling and What’s Still Hot

California real estate has long been synonymous with competitive bidding wars, record-setting sales, and skyrocketing property values. But in 2025, the Golden State's housing market is showing clear signs of cooling—and it’s affecting buyers and sellers differently depending on whether they’re in the luxury or mainstream segment.

Understanding these diverging trends is key for anyone looking to invest, sell, or buy in today's market.

• Mainstream Market typically includes homes priced below $1 million (though that varies by region).

• Luxury Market generally includes homes priced above $2 million, with custom features, premium locations, and limited availability.

What’s Causing the Market to Cool?

Several factors are putting the brakes on California's red-hot housing momentum:

• Higher interest rates are reducing buying power, especially in the mid-tier market.

• Inflation and cost-of-living concerns have made buyers more cautious.

• Inventory increases are giving buyers more options, softening competition.

• Tech sector uncertainty has cooled demand in areas like Silicon Valley.

Buyers in the mainstream segment are now more price-sensitive than ever. As interest rates hover above 6.5%, monthly mortgage payments on a $700,000 home are significantly higher than they were two years ago. This has led to:

• Longer days on market

• More price reductions

• A shift from bidding wars to negotiations

In areas like Sacramento, San Bernardino, and Riverside, homes that would have received multiple offers in 2021 are now sitting longer, often needing incentives or strategic pricing.

Despite broader market slowdowns, California’s luxury market remains resilient. Why?

• Cash buyers are less affected by interest rates.

• Foreign investors and high-net-worth individuals continue to see luxury real estate as a stable asset.

• Lifestyle demand (e.g., beachfront homes, hillside estates, homes with ADUs or wellness features) continues to drive interest.

  
  

In Los Angeles, Orange County, and the Bay Area, luxury homes with high-end finishes, unique architecture, and location prestige are still commanding top dollar—although sales volume has slightly dipped.

The California market may be cooling, but opportunity still exists—if you know where and how to look. Whether you're buying a modest first home or selling a multi-million-dollar estate, the key is to understand the market you’re in and make informed, timely decisions.

The gap between luxury and mainstream has never been more apparent—but for savvy buyers and sellers, that divide is full of potential.