April 21, 2025 – The California housing market remained resilient in March. Despite having a slow start at the beginning of the year, existing single-family homes sales continued to grow modestly on a year-over-year basis for the second straight month. Mortgage rate fluctuations and economic uncertainty, however, began to weigh on housing demand. Pending sales dipped again last month, suggesting a slow start for the upcoming spring homebuying season. Housing supply, on the other hand, continued to grow with total active listings rising at the fastest pace since January 2023. The increase in inventory might have a moderating effect on home prices, as the statewide median price increased only mildly at 3.5% from March 2024. Meanwhile, policy uncertainty continues to have a negative impact on housing sentiment and could slow market activity in the second quarter.

California home sales retreat but remain above the 3-month average: Sales of existing single-family homes in California dipped from the prior month by 2.3% but continued to rise from the same month of last year by 4.9%. The statewide seasonally-adjusted-annualized sales figure slipped to 277,030 in March but stayed above the 3-month average of 273,380 recorded between December 2024 and February 2025. Despite a continued bounce back in sales since the beginning of 2025, the level of homes sold remained below 300K, and has been under the benchmark for the last 30 months. Pending sales also slipped from the year-ago level for the fourth consecutive month as housing sentiment continued to trend down. The dip could be due in part to fluctuations in mortgage rates throughout the month of March, and the public’s growing concern of a recession might also have played a role in the housing demand slowdown. With consumers remaining worried about their personal finance outlook, housing sentiment could deteriorate further in the near term and home sales could remain soft in the months ahead.

Housing supply reaches a 6-month high in California: Following the typical seasonal pattern, March’s unsold inventory index (UII) declined from the prior month as sales pace picked up at the end of the first quarter. The UII continued to grow from the year-ago level as more new listings hit the market. Total active listings rose on a year-over-year basis at the fastest pace since January 2023. The level of active listings last month reached a 6-month high and recorded the 14th consecutive month of annual gains in housing supply. New active listings at the state level jumped year-over-year by double-digits for the third consecutive month, as more sellers began to list properties on the market. Newly added units also surged more than 20% month-over-month after dipping slightly in February. As of now, the unusual month-to-month dip looks more like a temporary hiccup due to the recent financial market volatility, rather than a reflection of the concern of the economy’s well-being.  

Consumer spending exceeds expectations despite declining sentiment: U.S. retail sales increased solidly in March as consumers stepped up purchases before tariffs push up prices to higher levels. The jump in March’s sales exceeded consensus expectations of 1.2% and was sharply higher than the 0.2% registered in February. Motor vehicles and auto parts surged 5.3% compared to the prior month but other goods such as garden supply and building materials also grew strongly as consumers tried to beat the clock before the tariffs’ effect on prices kick in. Households also spent more at restaurants last month and the increase was not likely a front-loading impact caused by higher tariffs. Despite a solid uptake in demand in March, consumers will likely spend less in the months ahead as their confidence remains low amid tariff-related pricing concerns. As the U.S. continues to engage in aggressive tariffs battles with its trading partners, pullbacks will likely take place in the second quarter if trade wars linger on.

Single-family housing starts fall to an eight-month low: U.S. housing starts declined by double-digits in March, as economic uncertainty and rising material costs darkened the outlook for the home building industry. Total housing starts tumbled 11.4% month-over-month after increasing nearly double-digits in the prior month but inched up 1.9% from the same time last year, according to the latest release from the Census Bureau. Single-family housing starts fell 14.2% from February to the lowest level since July 2024 and were down 9.7% from the same month of last year. Housing construction plummeted in the West region, with housing starts dropping 30.9% from February and dipping 15% from March 2024. Housing permits in the U.S. inched up slightly by 1.6% from the previous month, but single-family housing permits dipped month-over-month by 2%. With builders remaining concerned about elevated interest rates, rising construction costs, and labor supply shortage, housing production could stall further in coming months.  

Homebuilder sentiment ticks up unexpectedly: After reaching a 7-month low in March, builder confidence in the U.S. housing market bounced back, with the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) edging up to 40 in April from 39 in the prior month. The slight increase in builder sentiment could be attributed to the retreat in mortgage rates in late March, but policy uncertainty and higher building costs continue to have a negative impact on builders’ confidence. The NAHB survey found that 60% of the respondents reported their suppliers have already increased or announced increases of material prices due to tariffs. On average, the increase amounted to a 6.3% jump in material prices, which is equivalent to a $10,900 in costs to the average new home. The survey also revealed that 29% of builders reduced home prices in April, unchanged from the prior month. Sales incentives were used by 61% of builders, an increase of two percentage points from 59% in March. Regional HMI scores showed declines in all regions, with the Northeast dropping the most by seven points, and the West sliding moderately by two points.

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