The Story of the Los Angeles Housing Market in 2025
2025 wasn’t a dramatic year for Los Angeles real estate, but it was an important one. After years of distortion caused by ultra-low rates and pandemic-driven demand, the market finally began to resemble something more familiar.
Inventory was the headline. Homes steadily returned to the market, peaking in late summer at the highest level since 2014. This wasn’t panic selling—it was fatigue. Homeowners who locked in historically low mortgage rates waited years for rates to fall, and many simply stopped waiting. Life moved on, and listings followed. By year-end, inventory sat well above recent norms, reshaping the balance between buyers and sellers.
Demand, however, never truly came back. Buyer activity stayed muted for the third straight year, weighed down by affordability and mortgage rates that remained above 6.5% for most of the year. Even when rates finally eased into the low 6% range in the fall, the timing worked against the market, landing during the slowest seasonal window. As a result, homes took longer to sell, negotiations returned, and pricing discipline mattered again.
The luxury market quietly outperformed the rest. Sales above $2 million increased year over year, supported by equity-rich buyers and a stronger stock market. While luxury homes still took time to sell, demand proved more resilient than in the broader market
By the end of 2025, Los Angeles real estate had clearly reset, not into distress, but into a more balanced, rational market where strategy mattered.
2026 Housing Market Forecast: Three Possible Scenarios
The direction of the 2026 housing market will largely be decided by mortgage rates—especially during the winter and spring.
1. Base Case: Gradual Cooling (Most Likely)
Mortgage rates settle between 6.0%–6.5% as the economy cools modestly. Inventory grows but stays near historical norms. Buyer demand improves in spring, sales rise 4–7%, and home values increase 2–4% with well-priced homes performing best.
2. Rate Relief Case: Mortgage Rates Drop into the 5s
If rates fall into the 5.7%–5.9% range, sidelined buyers re-enter quickly. Spring becomes competitive, multiple offers return—especially at entry-level price points—and prices rise 5–6% with sales up 8–10%.
3. Higher-Rate Case: Rates Stay Above 6.5% (Least Likely)
If the labor market strengthens and rates remain elevated, inventory builds faster, buyer demand stays cautious, and prices soften slightly, ranging from down 3% to flat year over year.
Across all scenarios, a foreclosure wave is not expected. Homeowner equity remains strong, and lending standards are far healthier than in past downturns.
Bottom Line
Los Angeles real estate has entered a more thoughtful phase. The frenzy is gone, but opportunity remains—for buyers who move strategically and sellers who price correctly. In 2026, timing, preparation, and market awareness will matter more than headlines.
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