Are Home Prices Dropping? (LA Fires, Insurance, & Interest Rates)

Are home prices finally coming down, and will interest rates ever get below 6 1/2%? And how will the Los Angeles fires affect insurance in California? I answered those in January 2025.

The fire was a very sad event for anyone in the Los Angeles area, and my heart goes out to them. The big concern for the rest of California is insurance. Anyone who has bought a house here over the last couple years knows the struggle. Many of the legacy insurance companies have pulled out or stopped writing policies. State Farm, for example, announced in March 2024 that it would not renew about 72,000 California policies, about 30,000 of them homeowners and other residential property policies, with non-renewals rolling out from mid 2024. That pushed more people to the California FAIR Plan, the state's insurer of last resort, which has existed since 1968 to bridge the gap for people who could not find coverage. It was never intended to solve the problem. With fire losses in the billions, I said it was too early to know exactly what would happen, but insurers will likely become more cautious, and some may pull out until major changes happen.

Why are insurers wary? One reason is fire risk, which I believe will get addressed over the next few years because the political pressure from the LA fires is unlike anything I have seen. The other is how rates are set. Under Proposition 103, passed in 1988, insurers need state approval before they raise rates, and I believe that system has made it hard for insurers to price for the risk. Any business has to offset its risk. I said I was optimistic that insurers would have the opportunity to push for changes so people could get affordable insurance. If you are nervous about buying or owning in California, it helps to build insurance into your budget before you make an offer.

On interest rates, they were up again in the first quarter of 2025. Most experts predicted they would come down, but maybe not until the end of the year. I had just listened to one of the leading economists in mortgage, who expected 5.875% by the end of the year. Remember that rates come down because the economy is weak or because inflation is lower. Most experts expected the economy to get stronger under the new administration, which would not help rates, but they still expected a meaningful decline by year end.

On home prices, a lot of lenders and Realtors will not talk about this, but we were seeing prices come down in many markets in California and Florida and other states. You can never measure home prices over three months. You have to look year over year. From January to December 2024, most states saw modest appreciation of 2% to 5%. As we get into spring I expected the market to heat up and California prices to rise 4% to 5%. For buyers right now, a sluggish market means a better deal. Fixed-up homes priced right still sell fast and often get multiple offers. If you are marking up a home that needs upgrades, it will sit for 30 to 60 days or more. Price aggressively.

Whether it is an investment property, a home to live in, or a move from another state, I am happy to talk. A good place to start is first-time buyer planning or get your rate. MortgageOne is now licensed in 49 states.