A midyear assessment from the California Association of Realtors is out, and with it, comes the group’s 2025 housing and economic forecast-the door is slowly opening on a rosier interest rate scenario that will end the “lock-in” effect and lead to increased housing inventory with buyers returning to the market and sellers to it, boosting sales and home prices in the coming year.

That is a great leap from the same number of 257,900 homes sold during 2023. Meanwhile, the median California home price is forecast to increase 4.6% in 2025 at $909,400 after a 6.8% gain this year to $869,500, from $814,000 at the end of 2023. The absence of a housing supply and the dynamics of a bid should keep the pace high.

C.A.R. President Melanie Barker said, “There would be more homes in the pipeline and lower borrowing costs, which would attract more players in the market in 2025.” Mortgage rates are falling to the lowest in more than two years, Barker said, boosting demand, especially among first-home buyers. When interest rates fall, sellers who have held back from re-locating owing to the “lock-in effect” will find it easier to do so.

U.S. GDP is also expected to slow down to 1.1% in 2025 after an increase of 1.9% expected this year in 2024. California’s non-farm job growth is also forecasted to fall to 1.1% in 2025 from last year at 1.5%, with the unemployment rate edged up to 5.6%.

But “even if price growth slows, demand will firm up with easing inventory and mortgages declining along with limited supply that puts a floor under home price appreciation,” C.A.R. Senior Vice President and Chief Economist Jordan Levine said. “The persistent housing shortage also will keep the market competitive, with the median home price hitting $909,400 by 2025.”