🌦 Early Rains and Market Rhythms

September and now October have brought some unexpected early rains to Santa Barbara. Typically, we do not see much weather activity until winter, but this year has started off differently.

Meteorologists are predicting a La Niña season, which usually brings a warmer and drier winter, but recent forecasts suggest a more neutral pattern. That means conditions could be less predictable than usual.

And honestly, that feels a lot like our real estate market right now.

📊 Market Overview: Calm on the Surface, Shifting Below

Experts are projecting a modest rise in home prices of about 3.6% through 2026, compared to earlier forecasts of just 1% for 2025. Inventory is also expected to grow slightly, with an estimated 2% increase next year.



(See the latest C.A.R. Forecast here)

Locally, Santa Barbara is not following the usual fall slowdown.
Normally, sales dip after August, but this year has been different:

• In 2024, September saw 9 fewer sales than August.

• In 2025, September recorded 8 more sales than August, an 11% increase year over year.

• Average days on market dropped to 52 days, consistent with 2024 levels.

• The median sale price was $1,580,000, down only 1.2% from September 2024.

So while pricing has remained steady, activity levels have stayed surprisingly strong heading into fall.

🏠 Buyer and Seller Insights

For Buyers:
There are still plenty of active buyers, but many are being cautious and value-driven. After years of competing in multiple-offer situations, many prefer to make offers only when there are no other buyers in play.

That creates opportunities. Acting early can give you a strong position before others jump in, while waiting may give you more room to negotiate later. Knowing when to move can make all the difference.

For Sellers:
Every offer deserves careful attention. Vet buyers thoroughly, but also take each offer seriously. In today’s more selective market, pushing too hard in negotiations can cause a good buyer to walk away. A thoughtful, balanced approach often leads to better results.

☀️ The Forecast

Just like the weather outlook, the Santa Barbara housing market appears stable, with modest gains in both pricing and inventory expected through 2026. But as we’ve learned this year, there is always room for the unexpected.

Whether you are thinking about buying, selling, or simply keeping an eye on the market, I always enjoy talking about real estate, investing, and life here in Santa Barbara.

Let’s connect and discuss how today’s trends might impact your plans.

 

House Price Appreciation by State and Metro Area: Second Quarter 2025.

Summary: 

U.S. home price growth continued to cool in the second quarter of 2025 as high mortgage rates, rising inventory, and broader economic uncertainty weighed on the housing market. The Federal Housing Finance Agency (FHFA) reported that national home prices increased 3.8% year-over-year, marking the slowest pace of growth since 2013. While all 50 states still saw annual price gains ranging from 0.9% to 7.5%, the District of Columbia posted a 3.4% decline. Connecticut and New York led with the strongest appreciation at 7.5%, while Colorado recorded the weakest at 0.9%. On a quarterly basis, however, home price growth slowed in 44 states and D.C., reflecting a broad-based deceleration.

At the metro level, market performance varied sharply. Home price changes ranged from a 7.4% decline in Punta Gorda, Florida, to an 18.1% surge in Sumter, South Carolina. Out of 386 metro areas, 27 recorded price declines while 359 saw increases. Despite this recent cooling, prices remain significantly higher than pre-pandemic levels, with a national increase of 54.6% since early 2020. Over that five-year span, Morristown, Tennessee led the country in appreciation, while Lake Charles, Louisiana saw the lowest growth for the fifth consecutive quarter.

C.A.R releases its 2026 California Housing Market Forecast

We’ve seen this market cycle before — sort of 

Two years ago, the housing market was in a "déjà vu" moment, exhibiting striking similarities to the market of the early 1980s, according to First American Chief Economist Mark Fleming. 

And now? The market is still stuck in that decades-old cycle — but it looks like it may start to head in a different direction.

Echoes of the past

Between 1978 and 1982, a demographic shift was affecting the market: Baby boomers were in their prime homebuying years, leading to a surge in sales. Home prices — and inflation — spiked, but as mortgage rates jumped to combat inflation, home sales fell nearly 50% while prices continued to climb, creating a significant affordability gap. 

Sound familiar? A similar series of events occurred between 2021 to 2025 as another large demographic group — millennials — entered their peak homebuying years. The pandemic served as a plot twist, sending mortgage rates to historic lows, which added fuel to the sales boom before inflation arrived.

But arrive it did — followed by a quick rise in mortgage rates — leading to a slowdown in sales and affordability challenges as home prices remained elevated. 

A slower rebound this time around

So what does that mean going forward? Will the coming years be similar to the mid-to-late '80s, which saw home sales rise whenever rates went down significantly?

Probably not, said Fleming. While the current real estate market is similar to the market of 40 years ago, mortgage rates are behaving differently.

"So, history doesn't repeat itself, but it often rhymes. The rhyme this time will be different because we don't expect rates to decline significantly in the coming years as they did in the mid-1980s," Fleming said.

By 1982, the 30-year mortgage rate was starting to descend from its 18% peak in 1981, taking a bumpy ride down to under 10% by 1987. While the spike from less than 3% in 2020 to nearly 8% in 2023 was painful, the course correction to historical norms — meaning somewhere in the 6-8% range — won't be as dramatic. Today's rates of around 6.3% aren't expected to get much lower anytime soon.

"The mid-1980s will not be like the mid-2020s because the market rebound then was driven by falling mortgage rates," Fleming said in an email. "Now, the market will rebound, more slowly, and not because of lower mortgage rates, but because life happens," he predicted.

"Today, the challenge is how to grow a market based on life events, not rate events, and do so in a way that is affordable for more would-be homeowners who won't be able to rely on mortgage rate-driven affordability gains."

A steady increase in home sales ahead?

While home sales have remained tepid this year, the pace is expected to pick up during the second half of the decade. In its forecast for 2026-2030, U.S. News & World Report predicts that existing home sales will gradually rise from around 4.55 million in 2026 to 4.9 million in 2030. Factors that could impede growth include limited suitable land, higher costs for materials and the impact of immigration raids on construction.

But slow growth could be a good thing: The rise in home sales in the mid-1980s did not end well for the housing market. By 1989, the impact of the savings and loan crisis as well as an economic recession led to a multi-year decline. Existing home sales fell from an annualized rate of around 3.75 million in the late '80s to under 3 million in the early '90s.

Fleming believes the lessons learned from the S&L era and from the subprime lending practices that preceded the 2008 financial crisis have made the U.S. housing market less vulnerable.

"Today's market is characterized by loans made to high-quality borrowers, with relatively little subprime risk exposure," Fleming said. "Practically every mortgage is fixed, and those that aren't are traditional adjustable-rate products without payment shock features. And almost all homeowners are wrapped in a safety blanket of equity."