Outlook 2026: What’s Ahead for California’s Housing Market
We all recognize that our equities are tied to the California housing market. So, what can we expect heading into next year?
Recent housing forecast events hosted by the Building Industry Association and Zonda Economics offered valuable insights into where the market is headed — and what it means for builders, buyers, and industry professionals alike.
Sales and Incentives
While home sales are holding steady, activity remains softer than in recent years. Many builders are relying on seller-paid incentives, such as interest rate buydowns or closing cost assistance, to keep deals moving. These tools help drive traffic but continue to chip away at profitability — a trend likely to persist through 2026.
Jobs and Affordability
Job growth, a critical driver of home purchases, has slowed notably. Higher income sectors in particular are showing signs of fatigue, which may limit demand in the near term. Meanwhile, home prices remain high across the state, keeping affordability out of reach for many potential buyers.
Inventory and Migration Trends
The resale market is beginning to loosen up, with more existing homes coming online. This gives buyers more options and adds competitive pressure to new home construction. In addition, migration into California is projected to turn negative after 2025, signaling reduced short-term demand growth.
Regional and Builder Activity
Among local markets, Sacramento County stands out as a bright spot, leading the state in new home starts and builder activity. Large national builders like Lennar and KB Home continue to generate strong traffic through aggressive pricing and mortgage buydowns.
Looking Ahead
The Federal Reserve remains in the driver’s seat, adjusting interest rates to balance inflation and unemployment — and, in turn, influencing mortgage costs. Despite near term headwinds, California’s housing market remains fundamentally undersupplied.
The consensus among forecasters? Expect a challenging but stable 2026, with stronger sales momentum anticipated in 2027 and 2028 as supply and demand find renewed balance.