2025 Mid-Year Market Summary - Behind the Headlines
The first half of 2025 ushered in a cooling housing market in Southern California, marked by slower new home sales and elevated builder incentives. A combination of factors including what we are calling “price fatigue” (the high cost of everything from food to gas to housing), coupled with continued high interest rates and economic uncertainty, translated into a slower spring sales season than typical.
For the first half of the year, new home sales in all of the major Southern CA markets averaged 2.9/mo/project, well below the first half of 2024 (3.9/mo) and below the 2014 – 2024 average (3.6/mo).
Historically, 3.0/mo is typically the dividing line between builders having pricing strength (over 3.0/mo) or weakness (under 3.0/mo). The Inland Empire is the only market that averaged over 3.0 sales/mo, while the coastal markets averaged slightly below.
Sluggish sales have builders offering generous incentives to spur buyer interest. Typical incentives are in the $20K - $30K range, which is most commonly offered as a closing cost credit and/or rate buy down.
The rate buy down incentive continues to provide a competitive advantage compared to the resale market. Although prices in coastal markets were relatively flat in the first half of the year, price cuts have occurred in the Inland Empire, with a few projects dropping prices up to 10%. However, the adjustments have been mostly in areas that had recorded outsized price increases in recent years.
Despite softening demand, limited new home supply is providing some underlying support for sales and pricing. As of Q2 2025, there were just 485 actively selling new home projects in Southern California, which is 60% below the average of 1,210 projects from 1994 – 2008.
Builders have also remained disciplined in releasing homes, with average months of available new home inventory in the 2.0 – 3.0 range in most markets. A 3-month supply of homes is generally considered to be equilibrium in the new home market.
Despite the slowdown in the market, demand and supply fundamentals remain relatively healthy. On the demand side, although economic uncertainty has risen in recent months, job growth in the region is positive year-over-year and the unemployment rate remains low. On the supply side, new home project counts are near record low levels. In addition, resale inventory has ticked up recently but is still at or below equilibrium.
Poor affordability is the biggest drag on the market and will likely contribute to languid sales and price softening in the second half of the year. However, a major price correction is unlikely due to tight supply conditions and the lack of distressed inventory in the market.
Expect the market to find its footing by early 2026, assuming less economic uncertainty and the possibility of mortgage rates falling below 6%.
Given the crosscurrents at play, informed decision-making has never been more important. Clarity is the premier real estate market feasibility advisor on the West Coast.