California house prices could change direction in 2026

Housing affordability is slightly improving in one of the most expensive markets in the country, California, where homes are currently selling for nearly double the nationwide median.

By the end of 2025, the number of residents able to afford the median-priced home in the state had climbed to 18 percent, according to the California Association of Realtors, up from 17 percent in the third quarter of 2025.

Why It Matters

Millions of Californians, especially those with lower incomes, cannot afford housing. 

Home prices have skyrocketed all across the country since the pandemic due to the homebuying frenzy sparked by historically low borrowing costs, which clashed with a chronic, nationwide lack of inventory. 

This shortage has been especially dramatic in states like California, where strict regulation and lengthy processes slow down efforts to build new homes.

As of January, according to Redfin data, California had among the highest median home sale prices in the country, at $780,200. The national median home sale price the same month was $423,261.

What To Know

According to CAR’s latest report, only 18 percent of Californians could afford a $869,300 median-priced home in the state in the fourth quarter of the year—up from 16 percent a year earlier, in the fourth quarter of 2024. (Differences in coverage and methodology explain the discrepancy in median prices between Redfin and CAR).

Affordability improved even more in parts of the state like San Diego County, where the number of residents able to afford the median-priced home went up from 13 percent in the third quarter of the year to 15 percent. In the Los Angeles metropolitan area, 17 percent of residents could afford the median-priced home, while in the San Francisco Bay Area this share went up to 23 percent.

The main reason why affordability has improved in the Golden State is the decline of the effective interest rate, which dropped for the third consecutive quarter between October and December to its lowest level since the third quarter of 2022.

Mortgage rates, which remain nearly double what they were during the lows of the pandemic, were slightly lower by the end of last year than they had been earlier in 2025, and experts expect them to fall to around 6 percent throughout 2026.

As sales remain sluggish all around the country due to high housing costs, buyers are gaining more leverage and price growth has waned, including in California. Here, the median price of an existing single-family home actually fell 2.2 percent for the second straight quarter in the fourth quarter of 2025.

These numbers, while positive, are still not great news for Golden State residents, who struggle much more than other U.S. would-be homebuyers to step on the property ladder. Compared with California, 39 percent of the nation’s households could afford to purchase a $414,900 median-priced home, according to CAR.

What Happens Next

A majority of housing experts expect housing affordability to improve slightly throughout the year thanks to wage growth outpacing home price growth for the first time in years.

Home prices in California are expected to remain soft for the next couple of months, according to CAR experts, but they could rebound as homebuying season picks up in spring, unleashing more demand amidst still-dwindling stock.