QUICK MARKET
ANALYSIS

March 23, 2026 – Housing and economic indicators continue to be shaped by the conflict in the Middle East. As oil prices rise and inflation risks re-emerge, markets have pushed interest rates higher, complicating the outlook for both Federal Reserve policy and mortgage borrowing costs. The Fed held its policy rate steady, signaling caution as energy-driven inflation expectations limit the case for faster easing. Against this backdrop, California home sales and prices showed early-season improvement, but higher rates threaten to slow momentum in the months ahead. Near term, interest rates are likely to stay choppy and elevated as headlines drive energy prices and inflation expectations, keeping housing activity sensitive to even small rate moves.

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Fed holds policy rate steady as the US-Iran war creates more uncertainty on inflation: The Federal Reserve decided to keep the central bank’s policy rate unchanged in their latest Federal Open Market Committee (FOMC) meeting, as oil prices surged in recent weeks in response to the conflict in the Middle East. The inflation outlook released after the meeting was revised higher, with Fed officials raising their 2026 inflation forecast to 2.7% from 2.4%. The Fed’s projection on rate cuts indicates that one rate cut is likely in 2026 and one more is expected in 2027. While no policymakers signaled a rate hike this year, fewer of them now expect multiple rate cuts in 2026. Higher oil prices that push up short-term inflation expectations are a key reason for restraint on monetary easing, as the Fed Chair Powell reiterated that the labor market remains broadly balanced and does not yet justify any rate cut under the current circumstances.

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California home sales bounce back from January: Home sales at the state level showed signs of improvement in February, rising solidly from the prior month but remaining slightly below the level recorded a year earlier. Sales of existing single-family homes jumped 7% from January’s upwardly revised pace of 256,910 units, as lower mortgage rates in January – when most sales opened escrow - motivated buyers to close their deals. Pending home sales also increased from both the prior month and the same month last year, as mortgage rates trended lower throughout most of February before reversing course in recent weeks and climbing to their highest level in more than six months. While the stronger-than-usual month-to-month increase in pending sales provides some hope that closed transactions could improve in March, the recent spike in mortgage rates will likely slow buyer momentum and keep sales activity subdued in coming months.

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Home prices climb for the first time in four months: California’s median home price rebounded in February from both the prior month and the same month last year, inching up to $830,370 as the market geared up for the homebuying season and market competition began to heat up. The statewide median increased 0.9% from January, defying the historical trend of -0.3% typically observed between January and February. On a year-over-year basis, the median price rose following two consecutive months of annual declines and posted its best growth rate in five months. At the county level, 24 of the 53 counties tracked by C.A.R. recorded year-over-year gains in median home price last month. While prices are expected to climb as the market approaches the spring homebuying season, lingering concerns about the broader economy and market conditions could constrain the pace of price gains in the months ahead.

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New home sales fall to lowest level since late 2022: U.S. new home sales kicked off 2026 with a slow start as harsh winter weather likely weighed down on sales of newly built homes. According to the Commerce Department’s Census Bureau, new single-family home sales in January fell to the lowest level since October 2022, dropping 17.6% from December and were below last year’s level by 11.3%. The plunge in sales at the start of 2026 was due primarily to rough weather across the U.S. but higher level of existing housing inventory available to homebuyers in recent months might have played a role for the dip in new housing demand as well. At the regional level, new home sales had the largest yearly decline in the West (-28.7%) followed by the South (-8.8%), while the Northeast (0.0%) was unchanged and the Midwest (+18.0%) rose by double-digits. The drop in new home sales pushed housing inventory up to a 9.7-month supply, up from 8.0 months in December and an increase of 7.8% from January 2025. The slowdown in demand and the bump-up in supply might have also lowered home prices, as the median price of new homes sold in January dipped 6.8% year-over-year to $400,500. With mortgage rates rising sharply in recent weeks, sales of newly built homes could remain soft in the coming months.

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Home flipping activity slowed in 2025 as returns moderated: The number of homes being flipped by investors declined in 2025, according to ATTOM’s 2025 year-end U.S. Home Flipping Report. Nationwide, 297,045 single-family homes and condos were flipped last year, a dip of 3.9% from 309,050 recorded in 2024, and was the lowest level since 2020. A property is defined as a flipped property if it is an arms-length transaction and its previous arms-length transaction occurred within the last 12 months. Home flipped in 2025 accounted for 7.4% of all home sales, a dip from 7.6% in the prior year. The home flipping rate peaked in 2022 at slightly above 9% and had been declining for the past three years. Two-thirds (142) of the 215 metropolitan statistical areas included in the report experienced a decline in home flipping rate in 2025. The gross profit for a typical flipped home was $65,981, which equates to a 25.5% return on investment (ROI). Last year’s gross profit dipped 14.3% from $77,000 in 2024, and the ROI in 2025 declined from 32.1% recorded in the prior year. With returns dropping to the lowest level since 2008 and high acquisition costs likely to remain the norm this year, home flipping activity could slow further in 2026.