Ask a dozen experts what we should expect for real estate in 2025, and you might very well get half a dozen different predictions. So the wise person looking to glean some insight will pay less attention to the headline claims (The market will go up! The market will go down! The market will crash!) and instead note some of the reasons that the experts cite in making their predictions. Those reasons will highlight some factors to keep your eyes on as the year unfolds and you make your plans to buy, sell, rent, or build.
According to the San Francisco Chronicle, San Francisco metropolitan area homes are expected to fall in value “about 1.8% from November 2024 to November 2025 . . . one of the few declines predicted for the largest U.S. regions.” The Chronicle’s Christian Leonard cites a number of factors that could have significant impact on home prices in San Francisco and Silicon Valley, including the AI boom, pent-up demand, and more homes coming onto the market.
Ruth Krishnan, founder of the Kristhan Team at Compass, says the luxury market — homes worth $5 million or more — is growing strongly, “driven by strong tech stock performance and cryptocurrency wealth. Limited inventory in this segment creates consistent upward pressure on prices.” She expects that the new mayoral administration of Daniel Lurie could have a positive impact if he follows through with his pledges to push hard on public safety, cutting bureaucracy, and addressing corruption. Krishnan says interest rates not only might not decline further but are likely to stay flat and “they could go up.”
Krishnan has also raised the question of whether the San Francisco area could see some sort of influx of luxury home buyers displaced by the devastating Los Angeles fires. “It’s going to take three years to rebuild those homes as a best-case scenario. . . . It only takes like a few dozen more people that are looking in that $10 million and above [tier of housing] to put pressure on those 12 to 15 homes that sell a year.”
Over at Norada Real Estate Investments, Marco Santarelli writes that home prices in the San Francisco Bay Area will likely stay relatively flat this year: “For buyers, this might mean a little more time to make decisions, but not necessarily a price drop. For sellers, it highlights the need for a proper pricing strategy.”
Back in early November, the California Association of Realtors released its 2025 forecast, with Senior Vice President and Chief Economist Jordan G. Levine saying that, statewide, a continuing strong economy and possibly lower interest rates are to be expected, but “”affordability looks poised to actually continue to get worse.” Levine echoes Krishnan in noting that it is the high end of the market that is strongest: “When California’s transaction volume is increasing, it’s mostly because stuff at the very high end of the housing market — $1 million and up, $2 million, $3–5 million, etc. — are really doing well. Even when the housing market’s growing overall, we’re still not seeing a lot of growth coming from the bottom end of the housing market. It’s our most inventory-constrained segment, but also I think reflective of just how much better off high-wage-earners are doing economically, facilitating the purchase of a disproportionate share of growth [in] higher end homes.”
Krishnan says interest rates not only might not decline further but are likely to stay flat and “they could go up.”
It’s not all just the rich getting richer and everyone below that suffering. The long-term problem the state created for itself by not driving higher amounts of new housing production are also hurting buyers. Levine noted that in the 1970s, when the state population was less than 24 million, there were more than two million housing permits issued. Today, California’s population is about 40 million but in the 2020s so far there have been fewer than half a million permits, and for the 2010s there were only 851,152 permits.
And, just because I wanted one more prediction, I also checked with Google’s Gemini AI, asking, “What will happen to the San Francisco residential real estate market in 2025?” Gemini responded:
The San Francisco residential real estate market in 2025 is expected to remain competitive, with home prices continuing to rise, albeit at a slower pace than in previous years. Several factors are contributing to this trend, including: Limited inventory: The number of homes available for sale in San Francisco is expected to remain low in 2025, which will continue to drive up prices. Strong demand: San Francisco remains a desirable place to live, with a strong economy and a high quality of life. This will continue to fuel demand for housing, even as prices rise. Rising interest rates: The Federal Reserve is expected to continue raising interest rates in 2025, which will make it more expensive to finance a home purchase. This could dampen demand somewhat, but it is not expected to offset the other factors that are driving up prices.
Interesting that Gemini didn’t cite the AI boom as a factor creating affluent buyers. Perhaps it has other plans?