One of the biggest forces shaping California’s housing market in 2025 is the lock-in effect. This occurs when homeowners with historically low mortgage rates choose not to sell, because moving would mean giving up a rate under 5% and stepping into one closer to 7%.

In July 2025, roughly 81% of California homeowners had mortgages below 5%. For these homeowners, selling today often translates to dramatically higher monthly payments, making it financially unattractive to move.

Why the Lock-In Effect Matters

• Inventory squeeze: With fewer owners willing to sell, the number of available homes remains well below historical norms.

• Persistent competition: Even though rates are higher, limited supply keeps buyers competing for fewer listings.

• Crash unlikely: The scarcity of inventory is one of the main reasons economists don’t expect a housing crash in California anytime soon.

California Housing Context in 2025

• Median price gap: In April 2025, California’s statewide median home price reached $910,160, more than double the U.S. median of about $403,700.

• Affordability crisis: Only 17% of California households could afford a median-priced home in Q1 2025. A bottom-tier home required an annual income of around $145,000, roughly 50% higher than the state’s median household income.

• Rent vs. income gap: Since 2020, average rent has grown 38%, while wages rose just 23%. By March 2025, renters needed to earn 2.8x minimum wage to cover average asking rents.

• Affordable housing shortage: California is short nearly 1 million affordable units for extremely low-income households, with thousands of subsidized homes at risk of expiring into market rate.

How the Lock-In Effect Impacts Palos Verdes

The Palos Verdes Peninsula — made up of Palos Verdes Estates, Rancho Palos Verdes, Rolling Hills, and Rolling Hills Estates — is no exception.

1. Ultra-Low Turnover in Premium Markets

Many Palos Verdes homeowners secured low-interest mortgages during the past decade. With rates now nearly double, they are reluctant to move. This has caused ultra-low turnover in high-demand neighborhoods.

2. Constrained Move-Up Market

Because mid-to-upper tier homeowners aren’t selling, the usual “ladder” of housing supply is blocked. Buyers looking to move up within Palos Verdes often face limited options, pushing prices higher for the few listings that appear.

3. Price Support Despite Higher Rates

Even though higher mortgage costs have cooled some buyer enthusiasm, the scarcity of listings provides strong support for pricing. The most desirable homes continue to draw multiple offers, while homes needing updates or with location challenges may sit longer.

4. Unique Peninsula Dynamics

The Peninsula has its own nuances:

• High household incomes: Median household incomes are among the highest in Southern California, with Palos Verdes Estates averaging nearly $250,000 per year.

• Limited land supply: Strict zoning, natural boundaries, and protected open spaces keep new development minimal.

• Geological constraints: Certain cliffside zones in Rancho Palos Verdes are affected by gradual land movement, adding risk and complicating decisions for both buyers and sellers.

Key Facts About the Palos Verdes Peninsula

• Population: Roughly 109,000 residents across the four cities.

• Median household income: About $149,000 overall, well above the California average.

• Median home value: Approximately $1.49 million across the Peninsula.

• Education: Among the highest levels of educational attainment in the region, with Palos Verdes Estates reporting over 78% of adults holding a bachelor’s degree or higher.

• Lifestyle: The Peninsula is known for its coastal bluffs, equestrian lifestyle, and protected natural spaces, making it one of the most desirable areas in Los Angeles County.

Final Thoughts

The lock-in effect is keeping supply tight across California — and in Palos Verdes, that means buyers continue to face limited options, while sellers benefit from persistent demand.

For homeowners, this is both a challenge and an opportunity. With fewer listings on the market, properly prepared homes stand out even more. For buyers, success often comes down to acting quickly, leveraging local expertise, and accessing off-market opportunities.

📞 Thinking about buying or selling in Palos Verdes? Now is the time to strategize. I’d be happy to walk you through your options and share insights from decades of experience right here on the Peninsula.