The California real estate market opened 2025 with weak sales and consistently high prices even as demand fell in several metro areas. However, experts say that the Golden State is poised for a comeback. Several CA cities are experiencing increasing activity in their housing market, largely fueled by the shifts in population density for environmental and economic reasons.
At Defy Mortgage, we deliver comprehensive mortgage solutions that are fully customizable to fit every financial scenario. Whether you’re an entrepreneur or self-employed individual looking to fund your first rental property purchase or a homeowner seeking to tap into stored home value with a cash out refinance, we can formulate a loan option that aligns perfectly with your strategy.
As a trusted non-traditional lender, Defy works with real estate investors across various states in the US. We closely monitor each of these markets to identify the best opportunities, and in this article, we’ll share what we’ve found on California’s housing market with you.
Let’s explore the cities in California that are poised to become highly lucrative markets in the near future, and the forces powering their accelerating growth.
Top 7 Cities to Watch in 2025
1. San Diego
Similar to Los Angeles and other coastal areas in the California real estate market, San Diego has long enjoyed popularity among homebuyers and investors thanks to its innate environmental allure and a thriving, diverse local culture. But what sets San Diego apart is its relative affordability, unique attractions, and growing opportunities in several sectors.
Multi-Industry Hub
The city’s core industries, including tech, biotech, and military sectors continue to grow each year, driving substantial demand for housing. Often dubbed “Biotech Beach”, San Diego’s life science sector is a cornerstone of its economy, with 1 in 30 San Diegans working in the industry. Its tech sector is also accelerating at a brisk pace. Last year, it ranked #17 in CBRE’s annual “Scoring Tech Talent” report, moving up 3 spots after its tech workforce increased 3.2% to just over 80,000 professionals between 2018 and 2023.
To add to all of this, San Diego is also a vital hub for logistics and host to various bases of the US Navy and Marine Corps.
Stable Population
Meanwhile, San Diego’s population is growing steadily. Current projections put its 2030 population at around 1.69 million, an increase from its current population of around 1.38 million. The new influx of professionals in tech and other sectors are expected to increase housing demand and the overall health of the market.
More Affordable Homeownership and Cost of Living
For homebuyers looking to purchase idyllic coastal properties, San Diego offers much more competitive prices than Los Angeles and other beach cities in California. The median home price in San Diego was $952,209 as of January 2025, compared to $1,035,435 in LA and $1,415,577 in San Francisco. The cost of living in San Diego is also 20% lower than in San Francisco and 4% lower than in Los Angeles.
2. Sacramento
With recent improvements in infrastructure and housing supply, California’s state capital is growing in popularity as an affordable alternative to the notoriously high-priced Bay Area. As a premier destination for renters looking for a better cost of living, it is particularly suited for suburban and multi-family housing investments.
Major Tech Hub
Alongside cities like San Diego, Oakland, and San Jose, Sacramento is a massive tech hub, hosting the offices of various major companies centered around Silicon Valley. The technology sector comprises nearly 90,000 of the jobs in Sacramento, with large offices such as Apple’s Elk Grove campus, employing over 5,000, and Intel’s Folsom campus, employing over 6,000.
Suburban Home Demand on the Rise
Sacramento offers a unique blend of affordability and proximity to excellent schools and amenities such as parks and outdoor spaces. As such, it’s a prime choice for families and professionals looking to find suburban living arrangements at reasonable prices. Sacramento homes are spending less time on market, decreasing from 101 days in January 2024 to 71 days in January 2025, reflecting this uptick in demand. Single-family rentals are experiencing similar growth.
Multi-family Home Demand Being Addressed
New developments are addressing the rising demand for multi-family homes in Sacramento, with areas like Midtown and East Sacramento seeing projects catered to young professionals and new families. Once completed, these housing projects offer opportunities for both homebuyers and investors with limited capital.
3. Los Angeles
Los Angeles continues to dominate headlines in the California real estate market despite recent challenges such as the LA wildfires and economic fluctuations. Its luxury property segment remains highly sought-after, particularly among international buyers and high-net-worth individuals.
Although it has diminished somewhat in the past few years as entertainment productions seek more affordable locations, LA still remains the largest entertainment hub in the United States, offering economic opportunities that keep real estate investment in the area viable.
Luxury Market Here to Stay
Despite recent calamities and economic uncertainty, experts predict that the Los Angeles real estate market will rebound as early as late spring 2025. This is due in large part to the resilience of the luxury market. High net-worth individuals (HNWIs) usually make financial decisions in accordance with the stock market and other broad economic markers rather than acute phenomena like natural disasters.
Prior to the wildfires, LA’s luxury market was also on a clear rebound. As one of the premier cities in the US for entertainment and various other industries, demand for luxury properties in LA is here to stay. Prices in the Palisades area where the fires originated may be unstable for a while, but everywhere else, property values are likely to rise even higher. For investors, this can be a good opportunity to purchase with a jumbo loan.
Increased Demand For Specific Property Types
Some displaced residents are currently in search of accessible housing that will allow them to remain within or near LA proper. This has led to a massive increase in rental demand, driving up rental prices to unsustainable levels. Short-term rentals such as AirBnBs have actually presented as a more affordable alternative to traditional renting. Some AirBnB hosts illegally spiking their prices as the fires raged, resulting in higher demand than ever among displaced residents seeking temporary shelter as they consider more permanent options.
Those who can afford it are choosing to purchase homes rather than rent, after the massive increase in rental demand has driven up rent prices to unsustainable levels. Single-family homes are also significantly more in-demand now, as former renters are now taking out mortgages and purchasing homes.
Multi-family Market Still Going Strong
While short-term rentals and single-family homes have experienced spikes in demand, the multi-family market has maintained its strength as LA residents look for new homes. Multi-family homes have long been a popular option in LA because of their affordability compared to other property types, with an effective rent of $2,257 per unit as of Q3 2024. This figure–as well as the cost of entry–is likely to be much higher following recent events, but for those with limited capital, multi-family homes remain one of the more viable options alongside short-term rentals for creative financing or DSCR loan-based investment strategies.
4. Oakland
Oakland, located in the San Francisco Bay Area, is known for its vibrant arts scene, diverse communities, and significant port operations. Central to its current rise is a series of urban renewal projects and new developments injecting fresh energy into its neighborhoods.
Tech-Led Economic Growth
Given its proximity to Silicon Valley, Oakland is one of California’s major technological centers. But it’s more than just a tech hub. Major employers in other industries that make heavy use of technology, such as Uber and Salesforce, continue to increase their presence in Oakland because of its unique support structure for tech-heavy industries. With another E-commerce boom developing, Oakland’s thriving tech sector is aligning with its equally important logistical sector to secure the local job market for decades to come.
Ongoing Urban Renewal
Oakland is in the midst of a 20-year plan to renew its urban spaces, in accordance with the City of Oakland’s General Plan. This plan intends to revitalize underutilized neighborhoods, upgrade aging public infrastructure, and foster mixed-use developments that cater to both residential and commercial needs.
With increasing demand for both housing and commercial space, the mixed-use properties this plan would create could quickly become feasible investments. With the value that the plan can add to communities, it is also likely to increase demand and property appreciation in general.
Increasing Affordable Housing
Oakland’s General Plan also emphasizes affordable housing, incorporating measures designed to incentivize the construction of affordable units and reduce regulatory constraints. The updated Planning Code amendments focus on a multifaceted approach to housing development by encouraging a mix of housing types, including “missing middle” options, and streamlining the entitlement process to boost supply.
5. Fresno
Fresno, located in California’s San Joaquin Valley, is renowned for its agricultural roots and strategic position between major cities like San Francisco and Los Angeles. Its blend of urban amenities and a comparatively affordable cost of living has made Fresno an increasingly attractive destination for both first-time homebuyers and investors looking for value in California’s competitive real estate market.
Consistent Population Growth
While many metro areas in California are experiencing population declines, Fresno’s population grew, adding over 12,000 new residents since 2020. This is the second highest growth among the eight counties in San Joaquin Valley. As the largest county in the San Joaquin region with over 1 million residents, its continued growth bodes well for the health of both Fresno’s housing and job markets.
Homes in Fresno are appreciating rapidly thanks in part to this increasing housing demand, with home prices increasing by $14,925 year over year in January 2025–an appreciation rate of 3.9%.
Unbeatable Affordability
Of all of the cities on this list, Fresno is by far the most affordable. The state of California is infamous for its high cost of living at nearly 40% higher than the national average, but in Fresno, the cost of living is only 7% above the national average. Homes in Fresno sold for a median price of around $395,002 in January 2025.
With the rate of migration to Fresno, it is a likely candidate for displaced residents leaving areas such as San Francisco and Los Angeles. Rent in Fresno averages at around $1,200 per month–20% lower than the national average. This makes it very attractive for those looking for inexpensive living arrangements, potentially driving up demand for multi-family homes as those recovering from natural disasters and financial turmoil seek the most affordable housing options.
Future Developments
There are a number of planned developments to accommodate the city’s expansion which cements homes in Fresno as a solid investment opportunity. There are various road and sidewalk widening projects ongoing, along with a revitalization of the downtown area, particularly Mariposa Plaza and China Alley. These developments support Fresno’s evolution into a vibrant, modern urban hub, and therefore continued property value growth.
For homebuyers, housing initiatives such as the Southeast Development Area and One Fresno at Manchester Center are adding thousands of homes to the city’s housing inventory, potentially increasing affordability even more.
6. Riverside-San Bernardino
The Riverside-San Bernardino area, part of the Inland Empire, has long been one of the most affordable real estate markets in California. A popular destination for former LA residents priced out of their local market, the Inland Empire is now also becoming one of the primary destinations for evacuees from the LA fires.
Competitive Prices
As home prices in areas like Los Angeles and Orange County continue to soar, housing in the Inland Empire remains attractive due to the affordability of homes and cost of living in the area. Although not as affordable as Fresno, homes in Riverside still cost almost half as much as those in more expensive areas, at $660,000 on average as of January 2025.
As for cost of living, the average cost of living in Riverside is 17-19% above the national average compared to California’s 38-40%. While this is still pricey, it’s mitigated by the fact that the average effective rent in Riverside accounts for less than one-third of the median monthly household income in the area.
Popular Migration Destination
In Riverside’s ideal economic conditions, experts project a population growth of over 56,000 between 2024 and 2028, although it could increase by an even larger amount as migration trends ramp up. Riverside is one of the most popular destinations for people moving into and within California, with the county having added 40,000 people between 2021 and 2023.
Steep Rise in Multi-family Demand
Much like Fresno, people are coming to Riverside for its reasonable prices and cost of living compared to other parts of California. With many new arrivals seeking the most affordable options, the market for multi-family units is experiencing a large spike in demand. Corona and Riverside proper have been noted to have remarkably low vacancy rates in multi-family units.
Thriving Commercial Sector
Riverside is rapidly becoming a prime hub for entrepreneurs, fueled by its robust support system and thriving business climate. Businesses of every industry, from quaint coffee shops to innovative tech startups, flock to Riverside for its opportunities and charming mix of vibrant hotspots, historic landmarks, scenic riverside views, and overall welcoming atmosphere.
7. San Jose
As the heart of Silicon Valley, San Jose continues to be one of California’s top real estate markets, although prices can be prohibitive because of its central role in the tech industry. In spite of its high cost of entry, demand is still healthy with its steady influx of high-income professionals.
Luxury Market Resilience
Similar to Los Angeles, the luxury market in San Jose remains strong. San Jose’s luxury condominium developments have maintained their appeal despite broader market challenges.
New construction in the city has focused largely on high-end properties—especially in prime areas like Downtown San Jose and Santana Row—where limited inventory and high buyer demand continue to drive multiple-offer scenarios and competitive sale prices.
Multi-family Development Incentives
In addition to its strong luxury and rental markets, San Jose is taking proactive steps to revitalize its multi-family housing sector. City officials have introduced a temporary incentive program to jumpstart development.
The San Jose City Council approved a 50% reduction in construction taxes for the first 1,500 units of projects in designated growth areas—provided that complete applications were submitted by June 2022 and a building permit is secured by the end of next year. Moreover, a 25% tax reduction will apply for up to 8,539 additional units for eligible projects beginning in 2026.
California Real Estate Market FAQ
Which city in California offers the best investment opportunities in 2025?
The best investment opportunities for you will ultimately depend on your investment goals and risk tolerance. Cities like San Diego and Sacramento offer a balanced mix of affordability, robust job markets, and promising infrastructure improvements. But if you’re looking for more high-end investments, markets like San Jose and parts of Los Angeles may suit you better. Conversely, if you want more affordable investments, inexpensive markets with healthy demand for multi-family units, like Fresno and Riverside, could be a better fit.
Are prices in San Francisco and Los Angeles still too high for most buyers?
While San Francisco remains one of the most expensive markets, Los Angeles still offers pockets of opportunity in the form of luxury properties and areas with strong short-term rental markets. Prices in San Francisco, on the other hand, continue to grow despite plummeting demand, although some houses have sold for less than the local median price.
Is Sacramento’s real estate market still growing?
Absolutely. Sacramento continues to grow as the best place to invest in real estate in California due to its affordability and the steady influx of new residents and businesses. The city’s expanding tech sector, relatively affordable suburban properties, and increasing multi-family inventory are some of the biggest reasons for its continued growth.
What factors are driving demand in California’s smaller cities like Fresno?
Smaller cities like Fresno have managed to strengthen their local economy, often supported by an agricultural base and steady population growth. This has made property values in these areas much more affordable than many other rental markets in California.
How is the Riverside-San Bernardino area performing compared to other parts of California?
The Inland Empire, including Riverside-San Bernardino, has become a key area for affordable housing. With robust job growth and new infrastructure projects underway, it is quickly emerging as a favorite among investors looking for real estate investment opportunities in California.
What makes real estate investing in California so appealing to modern investors?
California’s diverse economy, innovative tech scene, and cultural vibrancy create a dynamic environment. Whether you’re looking for luxury markets in San Jose or affordable options in Sacramento or Fresno, the state offers some of the best cities to buy rental property in with solid long-term potential.
Key Takeaway
So, what can we expect from the California real estate market going into 2025? Looking at the current trends affecting each rising real estate market in the state of California, it seems that there is a general shift towards more affordable locales. This will likely drive up home prices and rental values in these areas, positioning them for sustainable appreciation, ideal for both investors and homebuyers.
Areas that have been steadily building up in popularity in decades prior, such as San Diego and Sacramento, are likely to experience even more accelerated growth thanks to continued migration away from expensive areas like San Francisco.
However, keep in mind that certain locales are best-suited for specific property types at this time; San Jose and Los Angeles are currently best for luxury properties, while Sacramento leads in single-family homes. As many displaced families search for affordable housing, multi-family homes are expected to experience even higher occupancy rates in areas like Fresno and Riverside.
Would you like to learn more about your real estate investing options in California? Schedule an appointment with Defy and let’s start planning how you can tap into the new opportunities arising in this diverse market. Alternatively, you can also give us a call at (615) 622-1032.
