January 19, 2026 – California closed out 2025 with an encouraging note, as signs of gradual improvement emerged across key economic indicators. Home sales ended the year slightly higher and, despite softer demand, cooling prices are helping steer the market towards better balance. Inflation showed signs of easing at the end of last year, offering households and businesses some welcome relief. Small business optimism also edged upward for the second straight month, reflecting improving expectations and reduced uncertainty. Although foreclosure activity rose, levels remain well below pre‑pandemic norms. Together, these trends suggest that California is entering 2026 with a foundation for steady, measured progress.

California’s home sales wrap up 2025 with a positive note: California home sales improved again in December, rising from both the prior month and the same month last year to reach their highest level since September 2022. While the pace of year-over-year growth in existing single-family home sales slowed from November, December sales still increased 2.0% from a revised 282,490 units recorded a year earlier. Total home sales in 2025 closed 0.9% above 2024, marking a modest but positive year-end outcome. Meanwhile, statewide pending home sales were virtually flat with a slight decline of 0.2% year over year in December, suggesting no growth or slow growth in closed sales to kick off the new year. As the market begins to move out of its seasonal slowdown, housing demand is expected to remain soft at the start of the new year.

Home prices dip in California as market competition cools: California’s median home price declined in December from both the prior month and the same month of last year, falling to a 10-month low of $850,680 as market competition cooled more than normal for a December. The statewide median slipped 0.4% from November, bucking the long-run average increase of 0.9% observed between November and December. On a year-over-year basis, the median price declined for the second time in the past three months and posted its largest annual drop since June 2023. For 2025 as a whole, the annual statewide median price went up 1.2% and reached a new record high of $875,550. Soft demand and elevated inventory levels will likely apply downward pressure on home prices at the start of 2026 though, paving the way for a more balanced market for buyers and sellers in at least the first quarter this year.

Encouraging consumer prices suggest that tariffs-induced inflation might have peaked: The latest consumer price index (CPI) came in lower than expected and showed signs that the tariffs-induced inflation might have already reached its peak. The December CPI increased 0.3% from the prior month and climbed 2.7% from the same month last year. They were unchanged from November’s growth pace and were in line with economists’ expectations. Core CPI, on the other hand, recorded 12 basis points (bps) below the estimated month-over-month growth pace and was held unchanged at 2.6% on a year-over-year basis. While the overall inflation level remained relatively contained at the close of 2025, both groceries and restaurant meals had sizable price increases over the past month. Shelter cost, a category that accounts for more than one-third of the CPI weighing, was up 3.2% on an annual basis but improved solidly from the 4.6% gain recorded in December 2024. Despite seeing some signs of easing in core prices at the end of 2025, inflation continued to stay above the Fed’s target of 2%. As such, the central bank will likely keep the fed funds rate unchanged in the upcoming meeting but will gradually move it down towards neutral in the next couple of years as Fed officials continue to monitor and assess the risks in the labor market.  

Small business optimism increases for the second straight month: The NFIB Small Business Optimism Index rose again in December and ended 2025 with a positive note, as the measure climbed 0.5 points (ppts) and reached 99.5 at the year-end. The increase in optimism was due primarily to small business owners’ better business conditions expectation and their reduction in policy/economic uncertainty. The net percent of owners who expected better business conditions jumped nine ppts to a net 24%, while the Uncertainty index fell seven points to reach its lowest reading since June 2024. Fewer owners were concerned about inflation as 12% of them said that inflation was their single most important problem in operating their business, a drop of 3 ppts from November. Both actual and planned prices also fell from the prior month, as the net percent of owners raising prices dipped 4 ppts, while those who planned to increase prices in the next three months declined 2 ppts.  Small business owners were most concerned about taxes as 20% of them reported taxes as their single most important problem, increasing 6 ppts from November and reaching the highest level since May 2021.

U.S. foreclosure activity increases in 2025 but remains below pre-pandemic norms: Foreclosure filings on U.S. properties increased to 367,460 in 2025, up 14% from 2024 but still down 25% from 2019, according to ATTOM. The 367k plus properties with foreclosure filings represented 0.26% of all U.S. housing units, an inch up from 0.23% in 2024 but a dip from 0.36% in 2019. For the month of December, 28,269 properties in the U.S. started the foreclosure process, a 19% jump from the prior month, and a surge of 46% from the same month in 2024. Nationwide, one in every 3,163 properties had a foreclosure filing in the last month of the year. At the state level, California had 29,777 foreclosure starts in 2025, an increase of 0.8% from 29,529 reported in 2024. With home prices expected to rise again in 2026 and the economy projected to grow modestly this year, foreclosure activity should stabilize in the next 12 months.

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