Happy New Year!
The beginning of the year is a good time to both review and forecast. This edition is therefore a little longer and more detailed than most. Hopefully you will find it worthwhile for both your information and for information to pass on to your clients. Many of the graphs bvelow are thanks to the excellent economists at C.A.R., Jordan Levine and Oscar Wei.
When we talk about real estate, we need to divide the conversation into two groups: real estate owners and real estate professionals.
In the past three years, home prices have continued to increase, good news for homeowners. But for the past three years, the market only produced 60% of the number of transactions that we used to consider “normal”. Not such great news for real estate professionals.
Owning your own home has been called the “American Dream”, NAR Chief Economist Lawrence Yun shared the chart below to explain how housing prices have faired over time. It was a good time to be an owner. Prices have done very well, particularly in the West.
Equity increases have been sustantial, whether homeowners bought in 1970 or 2000, whether current owners lived here at that time or not. The year 1970 was the beginning of a huge increase in California population. Some who moved here at that time still own the homes they bought then. Many have moved on to bigger, more expensive homes.
For the past three years, the number of total annual sales has stabilized, but at a lower level. Available inventory has been scarce.. In California, homeowners used to move once every 6 years. That has dramatically changed, with homeowners now moving on average only about once every 15 years.
At first blush, I thought Lawrence Yun going back to 1970 may have been too far back. But a significant portion of our population bought their first homes here in the 70s, and others sold their homes elsewhere and then moved here.
Since 2013, variable rate mortgages have been refinanced with 30-year fixed-rate mortgages, some with interest rates as low as 2.75%. The chart below needs to be understood. The dark Blue bars at the bottom show that 28% of all current mortgage holders have rates below 3%. The Orange bars indicate that 35% of all current mortgage holders have rates between 3-4%. That means that 63% of all mortgage holders have rates below 4%. They may like their homes, but they love their mortgage rate.
One theory says that owners are finding it difficult to move due to higher mortgage interest rates. But in retrospect, those owners will also be the recipients of a wealth of cash they have accumulated thanks to their investment in homeownership. For today’s buyers, will the past foretell the future? Is California still a great place to reside? Is owning a home still a good investment?
There are a lot of reasons to still answer “yes”.
Everyone needs a place to live. Homeownership is good, but there are other choices. Close to 50% of our residents are renters. Does it still make financial sense to be a homeowner?
Look at this C.A.R. history of the growth in net worth of homeowners versus renters. Homeownership builds wealth.
Let’s look at how the year finished up in our local valleys, begining with a comparison of real estate statistics over the same 3-month periods at the end of 2024 and 2025.
We ended the year with 26% more inventory than we had last year, and for much of the year the comparison was closer to a 60% increase. The Median Prices was slightly down over last year, down 1%, The Average price was down 6%, mainly due to the relative cooling off of the highest-priced home market. At this point, properties are staying on the MLS longer, for 8 weeks,compared to 5 weeks last year. The number of sales is down 1%, and pretty much the same total for the past three years. Months of Inventory (inventory divided by monthly sales) shows 1.8 months worth of sales. By itself that indicates we are still in a market slightly favoring sellers. Focusing on the bottom of the chart, bracketed sales this year versus last year show totals pretty even.
SImi Valley/Moorpark is similar in most respects. The inventory is a little higher, 36% more than last year, but prices, average days on MLS, number of sales and months of inventory/sales are all in line with Conejo.
The Simi/Moorpark bracketed sales do show a pronouced change. Sales of properties priced below $750,000 increase by 10%, as the first-time buyer market benefited from an expectation of lower interest rates. The next bracket of homes, from $750,000 to $1 Million, was down 17% from last year, partially due to my choice of brackets at $750,000 and $1-million. Many homes moved into the $1 million category, which was up 25%, as the Average sold price moved close to $1 million. Simi/Moorpark and Conejo have reacted differetly over the past three years, as Simi/Moorpark is more of a starter home area compared to a significant part of Conejo being extremely high-dollar properties. That does not mean that Simi/Moorpark lacks those high value properties, just that the percentage of properties compared to the total is higher in Conejo. All-cash buyers tend to be high-dollar buyers, and that effect was felt more in Conejo than in Simi/Moorpark. All-cash buyers have been very active for the past three years.
Let’s now discuss each valley individually. In the past couple of years, lack of inventory had been a continuing problem. In the Conejo, we ended last year with 26% more inventory than we had last year. Look at the total in the box to see the inventory progression across all price brackets. Looking at individual year graphs, 2023 (green) and 2024 (red) had very low inventories all through the year, whereas 2025 (black) showed the availability of much larger quantities of listings as the year progressed,. Inventory in 2025 behaved more like our pre-COVID years of 2018 and 2019.
Comparing the inventory graph to the graph of closed escrows, the lines below follow the same slopes as the inventory graph above. Based on history, we expect both inventory and sales to act in unison, increasing as we approach summer and then decreasing as we approach the end of the year. Except for the COVID years, the 2023, 2024, and 2025 markets reacted as expected, but at a much lower level.
Now let’s look at sales a little differently, with the year-to-date total of sales growing as the year progresses. Again, 2023, 2024, and 2025 are mirror images.
Let’s now graph the total number of sales for each year, going back to 2003. You can see that sales numbers spiked in 2021 due to COVID, and then dove.down. Looking at the bottom section of the graph, we can see that a main contributor to overall sales was the increase in high-priced property sales, the pink line representing property sales between $1-2 Million, and the green line sales over $2 million.
You can also see that total sales are currently at a level equivalent to 2008 – 2010, the Great Recession, when many homeowners lost their homes due to variable rate mortgages, and prices dipped as much as 40%. Sales continue to be low.
Finally, let’s look at Conejo prices during the past 5 years. Median prices reached at the middle of 2025 were about the same as 2023 and 2024. You can also see that the space between the Average and Median prices has come closer together The Average price receded pecipitously due to a drop in sales of extremely high-priced homes.
Now lets go through the same analysis for Simi Valley/Moorpark.
A lack of inventory restricted sales in 2023 (blue) and some, but not as much, in 2024 (red). We now have a normal inventory curve for 2025 (heavy brown), whereas 2023 and 2024 were pretty much flat. The inset box shows inventory comparisons by price category.
Sales for Simi/Moorpark behaved similarly to Conejo, with the 2025 (blue) curve below resembling the “normal” sales curve (brown). I consider the pre-COVID 4-yr average line as defining a normal market. The slope of the 2025 curve mirrors that normal line, but at a much lower level.
An upward spike occured last month as buyers expected lower interest rates this summer,. That occurred, but lower rates did not stay around. Remember that sales are recorded 30-60 days after contracts are written.
The cummulative sales chart for Simi/Moorpark shows how close the sales experience was for 2023, 2024, and 2025. Those three years had sales only half of the 2021 number.
Looking at the history of sales since 2003, we can see that the level of sales for the past three years is actually lower than the lows achieved during the Great Recession of 2008 – 2010. However, price increases have greatly changed the over-$1 million (red) portion of the graph. Prices in Simi/Moorpark have increased toward the $1 million mark. Although total sales (blue) are low, high-priced sales (red) are a bigger percentage of the toal sales.
Finally, the price chart for Simi/Moorpark. Average prices that were testing the $1-million line have returned to the low $900s. The Median price has been more stable, and remains around $850,000..
That’s where the market has been. Where are we going?
CAR economists Jordan Levine and Oscar Wei are much wiser than I. Many of the charts above are from their reports.
Below is their projection for 2026:
- Number of sales higher by 2%,
- Median prices increasing by 3.6%,
- Mortgage interest rates at 6%.
Projected sales of 274,000 units are much lower than sales in 2016-2021, which averaged above 400,000 units. Affordability is actually moving up slightly, a positive sign. Wages are increasing while home prices are more stable.
Supply and Demand are still important, but every crystal ball in existence is looking toward Washington DC for input.
NAR has been successful in getting the allowable SALT deductions increased from $10,000 to $40,000. That is great for California real estate owners.
NAR was able to keep the maximum allowable mortgage deduction at $750,000, even though some were trying to entirely do away with mortgage deductions. A few years ago the cap was at $1 million.
NAR has also been working to limit the purchase of residential real estate by large corporate ownership, historically about 17% of total annual sales. Those sales turn into rental properties, threby reducing available inventory and future sales. The president is currently proposing something along those lines, so we have to wait and see.
Still being worked on is the increase in the Capital Gains tax exclusion from the current $250,000/$500,000 for individuals/couples, to the recommended $500,000/$1 million with automatic adjustments for inflation. Fingers crossed, and please continue to support our lobbying efforts. All these efforts work together to increase the inventory and economics of real estate, limiting the negative influences currently at work.
Will 2026 be different from 2025? While a lot will depend on politics and legislation, we seem to have achieved a NEW NORMAL. Prices have risen to dizzying heights compared to the rest of the country. Due to our high prices, our kids cannot afford to live here. There is no reason to expect an increase in inbound domestic migration. Our population will stay roughly the same.
Two negative factors important to monitor are Consumer Sentiment and U.S. Job Growth. Both are important to the future of our economy. Consumers are the foundation of our economy, and their continued participation is extremely important.
Note that the Job Growth chart below is missing a great deal of recent information, as the head of the Bureau of Labor Statistics was fired (sometimes they do kill the messenger for bringing bad news) and the department now has a new head. They have not published information during the transition, so everyone is living in the dark, including the FED.
Do people still want to live in California, and are they able to purchase real estate?
Yes. First, look at the weather reports. That is often the number one reason why people move here. We actually had a little rain for the Rose Parade, but the rest of the country was hunkered down and shoveling the white stuff.
Also, State politics has made it more difficult for companies to remain here, and other states are romancing our businesses with attractive tax incentives. All politics.
The other factor is job and wage growth, which also has a lot to do with politics, which is lately in total chaos. Besides the two charts above, it’s important to keep yourself updated on the political scene. NAR and our lobbyists have been working every year to defend property rights and the attractiveness of investing in real estate. Please invest the minimum $25 annual contribution to the Realtor Action Fund this year.
During the Great Recession, I listened to a speaker describe how even negative news can be profitable. Knowing what is happening, keeping your finger on that pulse, and being able to advise your clients is what makes you a winner. Your clients need good advice, they need knowledge they can trust, and by staying in contact and giving them the news they need makes you valuable. We have been through hard times, and they are always followed by good times. Markets don’t constantly go in one direction, they move both up and down. Lawrence Yun said at the beginning of his communication “All Real Estate Is Local”. Your clients may have a passing interest in how the average US home is doing ($462,000) and the median California home price ($852,000), but what they really want to know is what that home down the block sold for, and what their home is worth. You can help with that.
Stay safe out there, and stay healthy. Happy New Year.
Chuck