By the end of 2025, the real estate market in the United States, and especially in California, increasingly resembled a buyer’s market.
The number of homes for sale significantly exceeded the number of active buyers.
Against this backdrop, prices began to adjust.
According to Zillow and Redfin, in California property values declined by approximately 10–15% compared to the peak levels of the COVID period. This is especially noticeable in the segment of properties priced above $3 million.
At the same time, more affordable homes — up to $1.5 million — were barely affected by the correction. Demand in this range remains stable.
The main question arises:
is this the beginning of a crisis or a temporary pause before a new growth phase?
Why the market has become a “buyer’s market”
The main reasons for the current correction:
- high mortgage rates
- declining housing affordability
- buyer caution
- an increase in the number of properties listed for sale
The high-end segment was hit the hardest because:
- buyers in this range more often rely on financing
- investment demand has decreased
- some owners decided to lock in profits after the growth of 2020–2022
But at the lower end of the market, the situation is different:
the shortage of affordable housing has not disappeared.
What could change the situation in 2026
In May 2026, the term of the Federal Reserve Chair — Jerome Powell — comes to an end.
Donald Trump has announced his intention to nominate a new candidate for this position — Kevin Warsh.
The very possibility of a change in Fed leadership has already impacted the market:
- the dollar has strengthened
- investors have begun pricing in expectations of future rate cuts
However, everything is not so straightforward.
Kevin Warsh is known for a relatively hawkish stance on inflation, which may imply a more cautious approach to lowering interest rates.
Early signs of a turnaround?
Interestingly, already at the beginning of 2026, the number of buyers increased by approximately 20%.
This may indicate:
- expectations of rate cuts
- attempts to “enter the market” before potential price growth
- restored confidence
If rates do start to decline, the market could quickly reverse:
- demand will increase
- supply will decrease
- prices will rise again
History shows that the California market reacts to changes in interest rates quite quickly.
Is a real estate crisis in California possible?
It is still too early to talk about a full-scale crisis.
A true crisis would require:
- mass mortgage defaults
- high unemployment
- an oversupply of new construction
- a drop in demand across all price segments
At the moment, we see:
- a correction in the high-end segment
- stability in the mass market segment
- increased buyer activity at the beginning of 2026
This looks more like a period of redistribution and ожидания, than a systemic collapse.
What buyers and sellers need to understand
If you are a buyer:
- you now have more negotiating power
- you can negotiate discounts or repair credits
- the selection of properties is broader than in 2021–2022
If you are a seller:
- it is important to price your property correctly
- overpricing may lead to prolonged time on the market
- competition in the high-end segment has increased
Conclusion
The California real estate market is in a transitional phase.
A change in Fed leadership and potential adjustments to interest rates could become a trigger for a new cycle.
The question remains open:
will a change in the Fed Chair lead to lower rates and renewed price growth —
or will the current correction mark the beginning of a deeper market cooldown?
I shared more detailed thoughts in this reel:
https://www.instagram.com/reel/DU3mgAMDNs1/
Author: Maria Shmagliy — Realtor in Los Angeles
