Welcome to 2025 – Happy New Year!
There’s something magical about the start of a new year. It is a time to reset, refocus, and recharge. Personally, I love setting goals and intentions for the year ahead—it’s a tradition that keeps me inspired and motivated.
I hope you’re entering 2025 with big dreams and bold plans. Our team sends you all the best wishes for a successful and fulfilling year.
As always, I’m kicking off the year with my South Bay Fearless Predictions. This has become one of my favorite annual traditions—a chance to look ahead, analyze trends, and share what I think might be in store for the local real estate market.
Of course, forecasting is no exact science, especially in a market as dynamic as real estate. These predictions are meant to spark curiosity and conversation, not serve as investment advice. Always do your homework and make decisions based on your unique situation.
2025 feels like it could be a turning point in many ways, but with so much happening in the economy and housing market, there’s a lot to consider. Let’s explore what might be coming down the pipeline.
Here we go…
Market Recap of 2024
To start, I want to first share a recap of how local markets performed.
In short it was a solid, if not normal year of growth which is excellent to see.
To recap, below are the rolling-12 median price movement by zip code, per CRMLS, when comparing 2024 to 2023 calendar years.
• 90266 – UP 8.0% (Manhattan Beach)
• 90274 – UP 5.2% (PVE, RH, RHE, and PVP)
• 90275 – UP 3.9% (Rancho Palos Verdes)
• 90254 – UP 2.3% (Hermosa Beach)
• 90277 – UP 15.5% (South Redondo, some Hollywood Riviera)
• 90278 – UP 2.6% (North Redondo)
If you remember last year’s recap, all of these zip codes were DOWN. It was in 2023 that despite the squeeze on inventory, sky-high interest rates reared their ugly head and really crushed the entire South Bay home market.
Fast forward to today and supply is getting better (although squeezed) and interest rates are still sky-high.
Even with the challenges of low supply and two-decade high interest rates, the market was able to bounce back and get to normal growth rates. A healthy sign for the marketplace.
The only outlier was affordable North Redondo and perhaps Manhattan Beach showing outsized growth.
All in all, it was a respectable year for our local housing markets in 2024.
My 2025 Fearless Predictions
Below is a list of my 2025 fearless predictions with more details further down the blog which reveals a curious, yet optimistic forecast:
1. South Bay Home Market Repeats 2024 Performance
2. Mortgage Rates Continue to Disappoint
3. Home Inventory Rises at a Snail’s Pace
4. Affordability Casts Shadow on Housing
5. Long-Term Bet: AI Real Estate Debut
Scroll down to read the full breakdown of each forecast.
South Bay Home Market Repeats 2024 Performance
While buyers are frustrated with a home inventory squeeze, for-sale homes are steadily increasing. This will create more options for buyers even with the challenge of elevated mortgage rates.
If interest rates fell significantly, the home market would fly…but that is highly unlikely.
The main reason holding the South Bay home market back from significant growth is affordability. If you track C.A.R.’s Housing Affordability Index like me each quarter (click here for my recent affordability post), then you know that statewide, housing prices are incredibly unaffordable.
In short, the set-up for the 2025 South Bay housing market looks very similar to 2024.
As a result, I believe we will see growth between 2% and 7% in most markets.
Mortgage Rates Continue to Disappoint
It is a fool’s game to predict mortgage rates and typically in the past, I have gotten interest rate movements dead wrong (like so many others).
That said, I was able to pull a rabbit out of my hat last year going against consensus and predicted while interest rates will fall, they will still remain elevated. And that is about what happened during 2024.
So, what is in store for mortgage rates in 2025?
Of course, this is pure speculation, but I am happy to give you an opinion.
And again, the answer is anti-climactic: More of the same.
Yes, I believe mortgage rates will mirror 2024’s performance as well. We will see rates come down slightly but remain frustratingly high. What does that look like? Well, the same as last year.
Although rates are higher in some cases now, I expect to see conforming loan rates range from 6% to 6.5%, and jumbo rates range from 5.75% to 6.25%.
Home Inventory Rises at a Snail’s Pace
Home inventory (number of houses for sale) has been the hottest topic of the past couple of years. Historically low amounts of homes for sale, thanks to “golden handcuffs” of owners holding ultra-low interest rates has put a strain on home purchase options.
We have seen incredibly low inventory with some areas finally starting to slow thaw in 2024.
The only market to see significantly rising inventory was Rancho Palos Verdes, but it remains below historical lows.
For 2025, I expect inventory to continue to rise with the most inventory, again, to be found in Rancho Palos Verdes.
In early conversations with clients, we are also getting more calls to list homes. While “golden handcuffs” can keep people in their homes for longer, at some point, people need to upsize, downsize, or move. It cannot last forever.
So, while I am optimistic inventory will increase, it will still increase only at a snail’s pace below expectations of many buyers.
Affordability Casts a Shadow on Housing
Regular readers are tired of me talking about affordability, but it is just too darn important!
Ultimately, affordability has been the greatest forecasting mechanism for California real estate prices. And while I am optimistic that our South Bay housing market can weather low affordability, there is really no margin for error.
Low affordability will negatively affect the national housing market and middle-class housing markets throughout California. Prices can only be supported by what people can afford.
As long as inventory stays constrained, then the housing market will be fine.
But unaffordable homes will begin to take their toll and create negative national news stories. This negativity will start toward the end of 2025.
If interest rates do not fall to offset the affordability crisis, then I fear the set-up for 2026 could be a bad one when buyers throw in the towel on purchasing a home, throw in any negative economic shock and then housing market will have no choice but to pull back.
Perhaps that would be healthy in 2026? For now, I believe the market is safe in 2025, but if rates remain elevated, an economic shock comes a year from now, and supply rises, then hang on! It is a low probability at the moment, but something all housing market observers should keep a close eye on.
Long Term Bet: AI Real Estate Debut
This year’s long-term bet is obvious!
We cannot escape what might become the “third industrial revolution” due to advances in artificial intelligence. It looks as if it will change nearly every facet of life.
Real estate will not be immune to AI’s disruption in the long term.
Below are ways on how AI will make real estate transactions more efficient and more affordable:
1. Loan automation
2. Escrow automation
3. Document generation and preparation
4. Scheduling automation
Without question, I believe we will see home loan automation as one of the first completely AI-enabled changes in our industry.
Large banks are motivated to cut costs and they have all of your financial data with the exception of tax returns which can easily be uploaded. That motivation to cut costs of human salaries, banks will be able to take your banking data and tax returns to completely automate the loan process with AI.
Loans will be faster and cheaper when it comes to residential homes. The same fate will happen in escrow, albeit a little later in the process.
Escrow is an independent third party facilitating the sale transaction between buyer, seller, lender, insurance, and closing. These are important tasks, but for the most part they are repetitive and can be automated with AI. If title companies, banks, and local county recorders add the appropriate APIs, then escrow can become a full AI-automated business quickly.
Lastly, Realtors’ jobs will be made easy…
The copious amounts of paperwork and DocuSign will eventually be handled by AI-enabled bots. What’s more, the painstaking effort to schedule showings on behalf of buyers or sellers will be eliminated by AI processes that sync sellers, buyers, and agents’ calendars to book showings in a seamless manner.
As a result, the buying/selling process will become more streamlined, fewer agents will be needed, and commissions will fall due to the smaller number of agents able to charge less in exchange for higher volume and less work (thanks to the efficiency of AI).
Final Thoughts
There you have it—the fearless predictions for 2025 in the South Bay real estate market. While the future is never fully certain, the trends and insights we’ve explored suggest a year marked by steady growth, affordability challenges, and a gradual rise in inventory.
As we look ahead, remember that these predictions are just that—predictions. The market is always evolving, and there are many factors that can influence outcomes. Whether you’re buying, selling, or simply watching from the sidelines, staying informed and adaptable will be key to navigating the uncertainty of this market.
Thank you for reading and for your continued support of the blog. Here’s to a prosperous 2025, filled with exciting opportunities and fresh insights into the ever-evolving South Bay real estate market. I look forward to keeping you informed throughout the year.