California Real Estate Market Analysis - September 2026

The Federal Reserve did what August's dissents foreshadowed. At its September 15-16 meeting the committee raised the federal funds target range by a quarter point to 3.75% to 4.00%, the first increase of this cycle, and it did so unanimously. The statement was blunt: "Inflation remains elevated," and the action "will support a timelier return to the Committee's 2 percent goal." Chair Kevin Warsh had prepared the ground at Jackson Hole on August 28, and the projections released with the decision showed 16 of 18 participants expecting at least one more hike before year-end (Federal Reserve, Sept 16, 2026; CNBC).

The awkward part is that core inflation kept improving. Headline CPI, the standard gauge of consumer inflation, held at 3.4% year over year in August, and core CPI, which strips out food and energy, eased to 2.4%, the softest reading of this cycle. Shelter inflation slowed to 3.0%. The problem is energy: up 16.3% over twelve months, with gasoline alone rising 3.9% in August and accounting for more than a third of the monthly increase (BLS, Sept 11, 2026).

The 30-year fixed averaged 6.67% in August, a sixth consecutive monthly increase from February's 6.05% low, then jumped after the decision to 6.95% in the September 17 survey, the highest weekly reading since January 2025 (Freddie Mac). That is 90 basis points, or 0.90 percentage points, above the winter trough, and daily indexes crossed 7.0% in mid-September.

NAR reported existing-home sales fell 2.0% in August to a 3.98 million SAAR, down 1.2% year over year and the lowest monthly figure in the 14 months this report tracks, with the national median at $429,100, up 1.6% (NAR, Sept 10, 2026). SAAR, or seasonally adjusted annual rate, annualizes one month's pace so months compare cleanly. Inventory is the other side of that coin: 1.62 million homes for sale, a 4.9-month supply, the highest in more than a decade and now inside the 5-to-6-month range generally considered balanced. Pending home sales, which measure signed contracts, edged up 0.3% in August but remain 4.7% below a year ago, with the West down 6.7% (NAR, Sept 17, 2026).

California closed the buying season firmer than July suggested. The C.A.R. statewide median for an existing single-family home rose to $901,420 in August, up 1.6% from a revised $887,210 in July, ahead of the typical July-to-August gain of 1.2%. Against a year earlier, though, the median is up just 0.1%, a fourth consecutive annual gain but the thinnest of them. Closed sales rose 2.4% to a 269,620 SAAR, 1.4% above August 2025, though still below the 300,000 benchmark for a 47th straight month (C.A.R., Sept 16, 2026).

A composition effect, the median moving because the mix of homes sold changed rather than values, is not what happened in August: the share of million-dollar sales fell for a third straight month, to 35.2% from 35.5%, and the median price per square foot, which is far less sensitive to mix, fell 1.4% on the month to $428 and is up only 0.2% on the year. The higher median came from seasonal firmness across the middle of the market; underlying appreciation is close to flat. C.A.R. Chief Economist Jordan Levine warned that a more restrictive Fed means rates "could remain elevated or move higher."

Supply is the trend to watch. The C.A.R. Unsold Inventory Index (UII, the months needed to sell every listed home at the current pace) climbed to 3.7 months from 3.4, its highest in six months, even as active listings slipped 1.6% from July and sit 6.2% below a year ago. Inventory is rising because homes are taking longer to clear, not because more owners are listing. Median days on market lengthened to 28 from 26, and the sales-to-list ratio eased to 98.9% from 99.3%, so buyers are again securing modest concessions. Both remain better for sellers than a year ago (31 days, 98.3%): this is a market returning toward normal, not one turning over.

Bay Area: The region's median eased 0.2% year over year to $1,272,000 and sales fell 4.2%, but the region is as tight as anywhere in the country: a 2.6-month Unsold Inventory Index and 22 days on market. Santa Clara was flat at $1,900,000 and still sells in 12 days, the fastest of any county; Alameda ($1,285,000, up 1.3%) and Contra Costa ($875,000, up 2.9%) both gained. San Francisco County remains the outlier: up 25.0% year over year to $1,875,000 on active listings down 53.6%, leaving a 1.3-month supply, the lowest in the state. Treat the percentage as a small-sample mix figure, but the scarcity behind it is real.

Southern California: The region led the state on price, up 2.9% year over year to $900,000, even as sales fell 4.8%. San Diego stayed the strongest large coastal county at $1,090,000, up 6.3%, with homes going in 19 days. Orange County rose 4.9% to $1,452,500 and, at 15% affordability, remains the most constrained large county in California. Los Angeles County rebounded 6.6% on the month to $946,950, up 1.7% on the year, though at 30 days it now sells slower than the state. The Inland Empire is where the slowdown is most visible: regional sales fell 8.4% year over year, the median was flat at $600,000, and supply reached 4.5 months. Riverside's 40 days on market and San Bernardino's 5.4-month index give buyers there the most leverage in the state.

Sacramento and Central Valley: The Central Valley was the only major region to post year-over-year sales growth, up 1.5% on a flat $500,000 median. Sacramento County steadied at $549,000, up 1.7% from July and flat on the year. Fresno is the soft spot this month, down 3.7% year over year and 4.4% on the month to $430,000, though at 36% affordability it still qualifies more households than any other county on the list. The Central Coast was the weakest region statewide, down 2.3% to $1,075,000, with Monterey off 16.2% on thin volume.

The affordability index is quarterly, so the official figure is unchanged this month: 19% of California households could afford the median-priced existing single-family home in the second quarter, down from 22% in the first quarter but above the 17% of a year earlier (C.A.R., Aug 5, 2026). C.A.R.'s third-quarter reading arrives in November and will capture the summer's rate increase. On the Q2 basis, a $916,750 median home with 20% down at 6.54% carries a monthly PITI payment of $5,710, where PITI means principal, interest, taxes, and insurance, and requires a qualifying income of $228,400.

Rates have moved since. Holding the same price, down payment, and C.A.R.'s tax and insurance assumptions, a 6.95% rate lifts that payment to roughly $5,910 a month, about $200 more and roughly $8,000 more in qualifying income, by this report's estimate. The same buyer at the same income now qualifies for about 3% less house than in June. Condominiums remain the realistic entry point at a $670,000 median, a $4,170 Q2 payment, and $166,800 of income, which 30% of households can manage.

Foreclosure activity is still rising year over year. ATTOM's August report counted 40,277 U.S. properties with a foreclosure filing, up 13% from a year earlier. Foreclosure starts were 25,894, up 7% on the year, and completed repossessions were 5,794, up 42%. California recorded 2,565 foreclosure starts, behind only Florida (3,189) and Texas (3,126), and 589 completed bank repossessions, second only to Texas (ATTOM, Sept 17, 2026). Those add to the first-half totals reported last issue: 16,040 California starts and 2,644 repossessions through June.

Two details matter for underwriting. First, California is a non-judicial foreclosure state: the process runs from a Notice of Default (NOD, the first formal filing when a borrower falls behind) to REO (real estate owned, a home the bank took back after a failed auction) without going through court. ATTOM's California "foreclosure starts" line is effectively the NOD count, so August's 2,565 starts are the leading indicator of REO supply arriving in early 2027. Second, the 22% one-month jump in completed foreclosures says the pipeline built over the past year is now clearing. Scale still argues for calm, since ATTOM notes activity remains "below pre-pandemic norms," but the direction has not changed in more than a year.

The rental market is absorbing the buyers the sales market is losing. Zillow put the typical U.S. asking rent at $1,948 in August, up 2.5% year over year, the fastest pace in more than a year and nearly double the 1.3% growth in home values, while 39.2% of listings offered a concession (Zillow, Sept 8, 2026). California's technology metros ran far hotter: San Francisco rents rose 10.8% to $3,409 and San Jose 7.6% to $3,815, both accelerating from July. The rest of the state tracked the national pace: Riverside up 2.8% to $2,541, San Diego up 2.0% to $2,994, Sacramento up 1.7% to $2,282, and Los Angeles up 1.6% to $2,941.

For covered units, the statewide rent cap under AB 1482 resets every August 1 using April regional CPI. The formula is fixed: 5% plus the regional change in the cost of living, capped at 10%. For the window running August 1, 2026 through July 31, 2027, the Los Angeles-Long Beach-Anaheim regional CPI of 3.7% produces an allowable increase of 8.7%. Other regions set their own figure from their own CPI, so confirm the number for the specific area.

National housing starts slipped to a 1,275,000 SAAR in August from a revised 1,309,000 in July, but the single-family component rebounded to 918,000 from 853,000, recovering most of July's drop (Census/HUD via FRED). The revisions matter as much as the new print: Census lifted July total starts by 70,000 and single-family by 45,000, so the weak July this report described last issue was less weak than first reported. Single-family starts still sit about 10% below March's peak. Builders remain cautious, not retreating.

California permitting is running well ahead of last year. The state authorized 8,793 privately owned housing units in July 2026, seasonally adjusted, up 10.2% from July 2025, and January through July permitting totaled about 66,000 units against 56,700 in the same months of 2025, a 16% increase, with 2026 ahead in six of seven months (Census via FRED, CABPPRIVSA). August state permits were unpublished at the time of writing, so California's most recent month is July, one month behind the national figure.

SB 79 took effect July 1, and the CEQA reforms in AB 130 and SB 131 took effect January 1, 2026. This year's permit strength is the first data that could plausibly reflect them, though the evidence is far from conclusive. The next test is whether the ADU bills on the Governor's desk (see Policy) are signed by September 30.