Every year, California’s housing market evolves based on a combination of economic forces, housing supply, buyer behavior, and policy decisions. As we move toward 2026, one thing is clear: this is not a market driven by fear or collapse headlines. It is a market defined by scarcity, normalization, and the need for thoughtful strategy.

For buyers and sellers across California, and especially in high-value coastal markets like Palos Verdes and the South Bay, understanding these dynamics is essential. Success in today’s environment is no longer about rushing or waiting blindly. It is about making informed decisions with experienced guidance.

The Economy Is Slowing, Not Failing

Economic growth across the United States is expected to continue at a slower pace through 2025 and into 2026. Job growth has moderated, unemployment has risen slightly, and inflation has cooled significantly from recent highs, though it remains above long-term targets.

This slower pace is not a negative for housing. In fact, real estate performs best in periods of economic stability rather than extremes. The explosive post-pandemic surge created unrealistic expectations and volatility. What we are seeing now is a return to more rational conditions.

For homeowners and buyers alike, this means fewer emotional decisions and more opportunity for thoughtful planning.

Housing Supply Remains California’s Biggest Constraint

One of the most important long-term issues shaping California real estate is housing supply. Over the past several decades, California has consistently built fewer homes relative to its population growth. Residential construction has declined sharply compared to prior generations.

Despite being one of the largest states in the country by population, California continues to trail states like Texas and Florida in new housing production. This imbalance between supply and demand is structural, not temporary.

For homeowners, this supports long-term property values. For buyers, it explains why desirable areas remain competitive even when the broader market slows.

In Palos Verdes, where land is limited and development is tightly regulated, supply constraints are even more pronounced.

Existing Home Sales Are Stabilizing

After a sharp slowdown in 2022 and 2023 driven largely by rising mortgage rates, California home sales have stabilized. Transaction volume remains below historical averages, but the decline has largely stopped.

This does not indicate weak demand. Instead, it reflects a lack of available homes.

Many homeowners are choosing not to sell because they have low existing mortgage rates, favorable property tax bases, and uncertainty about where they would move next. As a result, fewer homes are coming to market.

This lock-in effect is particularly strong in established communities like Palos Verdes, where homeowners often stay for decades.

Home Prices Are Holding Firm With Modest Growth Ahead

Statewide home prices have resumed gradual appreciation following a brief correction. Looking ahead, price growth is expected to remain modest rather than explosive.

This is a healthy market. Rapid price increases are unsustainable, while stable growth supports long-term equity and market confidence.

For sellers, this reinforces the importance of pricing correctly from the beginning. Overpricing in a slower appreciation environment can quickly backfire. For buyers, it means values are not collapsing, but opportunities still exist for well-prepared purchasers.

In premium coastal markets, pricing remains highly localized. Homes that are well presented, properly positioned, and thoughtfully marketed continue to sell.

Inventory Levels Are Rising Slightly, But Still Tight

Inventory has increased compared to the extreme lows of recent years, giving buyers more breathing room. However, the number of months of available supply remains well below levels typically associated with a true buyer’s market.

This is why calling today’s environment a buyer’s market can be misleading. Buyers may have more leverage than they did during peak frenzy years, but strong properties still attract serious interest.

Quality, location, and condition matter more than ever.

Mortgage Rates Are the New Normal

Mortgage rates have stabilized around levels that would have been considered normal by historical standards. While higher than pandemic-era lows, they are not unusually high over the long run.

What has changed is buyer psychology. Buyers are more payment-sensitive and more analytical. They are focused on value, condition, and long-term livability rather than fear of missing out.

For sellers, this means buyers are less forgiving of overpriced or poorly prepared homes. For buyers, it means opportunities exist, but patience and preparation are key.

Waiting for dramatically lower rates may result in higher prices and increased competition.

Affordability Challenges Persist, But Demand Remains Strong

Housing affordability remains one of California’s biggest challenges. A relatively small percentage of households can comfortably afford the median-priced home.

Despite this, the desire for homeownership remains strong. Most consumers still aspire to own a home, even if they believe it may take longer or require alternative paths such as larger down payments, family assistance, or purchasing later in life.

Education plays a critical role here. Many buyers are unaware of financing options or assume homeownership is entirely out of reach when it may not be.

First-Time Buyers Face the Greatest Pressure

First-time buyers represent a smaller share of the market than in prior years. Rising prices, higher rates, and limited entry-level inventory have created significant barriers.

This has ripple effects across the entire housing ecosystem. When first-time buyers struggle to enter the market, move-up buyers are delayed, and inventory remains constrained.

In Palos Verdes and similar communities, many buyers enter the market later in life, often with equity from previous homes or substantial savings.

Insurance Has Become a Major Transaction Factor

One of the most significant changes in today’s market is the growing impact of homeowners insurance. Insurance availability and affordability have become real obstacles in certain areas, particularly hillside and fire-prone regions.

This has led to transactions falling out of escrow when buyers are unable to secure acceptable coverage.

In Palos Verdes, addressing insurance early in the process is critical. This is an area where experience matters, as proactive planning can prevent costly delays or deal failures.

Cash Buyers and High-Income Households Are Driving Stability

Cash buyers now represent a significant portion of the market. Higher interest rates have pushed many financed buyers to pause, increasing the share of buyers who can purchase without loans or with minimal leverage.

This trend supports price stability in high-end and lifestyle-driven markets, including coastal communities and second-home areas.

Investment and second-home purchases remain elevated compared to long-term norms, reinforcing demand in desirable locations.

Migration Patterns Are More Nuanced Than Headlines Suggest

While California has experienced net domestic out-migration in recent years, this trend has moderated. Migration is not uniform across income levels, industries, or regions.

High-income households continue to value lifestyle, schools, climate, and long-term stability. Coastal markets with strong fundamentals continue to attract demand even as broader population trends shift.

Palos Verdes remains insulated by its quality of life, limited inventory, and long-term desirability.

What This Means for Sellers

Sellers in today’s market must be strategic rather than reactive. Success requires:

• Realistic expectations

• Correct pricing from day one

• Strong pre-listing preparation

• Thoughtful marketing

• Clear negotiation boundaries

Homes that are priced correctly and presented well continue to sell. Homes that rely on outdated expectations struggle.

What This Means for Buyers

Buyers benefit from slightly longer decision windows and more balanced negotiations. However, the best homes still move quickly.

Prepared buyers who understand value, financing, and long-term goals are best positioned to succeed.

Why Experience Matters More Than Ever

This market is more complex than the frenzy years. Between insurance challenges, affordability constraints, shifting buyer behavior, and lower transaction volume, experience is no longer optional.

Over more than two decades and more than one billion dollars in career sales, I have guided clients through:

• Multiple interest rate cycles

• Market corrections and recoveries

• High-pressure negotiations

• Complex property and insurance challenges

That experience allows me to translate market data into real-world strategy for buyers and sellers making important financial decisions.

Final Thoughts

The California housing market heading into 2026 is not defined by collapse or chaos. It is defined by normalization, scarcity, and opportunity for those who are prepared.

Whether you are considering buying, selling, or simply planning ahead, having the right strategy and experienced representation makes all the difference.

Suzanne Dyer
Luxury Real Estate Specialist
Strand Hill | Forbes Global Properties
Over 1 Billion Dollars in Career Sales
Top Realtor in Rolling Hills, Palos Verdes Estates, and the South Bay
310 528 7480 | [email protected]
DRE 01054310