Every January, SoCal home prices dip. That is not news. Winter is the slowest season in real estate across the board and Southern California is no exception. Buyers are less active, fewer homes sell, and the numbers reflect that. So when you see a headline screaming "two-year low," take it with a grain of salt. A lot of what you are reading is seasonal noise.
That said, this January was not purely seasonal. According to the LA Times Housing Tracker, the average SoCal home price fell to $855,335, down 0.9% year over year. That is the third straight month of declines and the eighth drop in the last nine months. The magnitude is small, but the consistency is worth paying attention to.
A few real factors are layered on top of the typical winter slowdown: mortgage rates are still elevated, inventory is quietly rising, and tariff-related economic anxiety is making some buyers more hesitant than usual. None of this adds up to a crash. But it does mean the market is giving buyers a window that did not exist 18 months ago. Here is what I am actually seeing on the ground.
January 2026 by the numbers:
$855,335 average SoCal home price, the lowest since March 2024
0.9% year-over-year price decline across Southern California
3,472 new homes listed in LA County in January, the lowest since January 2024
$2,163 median rent in LA, the lowest since January 2022
What is driving the slowdown
There are a few overlapping forces at work here. Mortgage rates remain sticky, keeping monthly payments high and sidelining buyers who have been waiting for relief. Inventory in LA County hit its lowest January total in two years, which is unusual. When fewer sellers list, it is often a sign that owners are holding back, either protecting a low pandemic-era rate or uncertain about what they would buy next.
On top of that, broader economic anxiety is real. Tariff-related uncertainty has crept into buyer psychology, making people more cautious about committing to large financial decisions. That hesitation shows up in the numbers.
Until the recent wave of declines, July 2023 was the last time year-over-year prices had fallen in SoCal. That episode was driven by rapidly rising mortgage rates. This time, the culprit is a slower-moving mix of high rates, rising inventory, and softening demand.
The rental market is also softening
Rents in LA continued to drop in January, falling to a median of $2,163, which is the lowest since January 2022. This is a four-year low driven largely by a surge in multifamily supply. In 2025, 15,095 new multifamily units were completed in LA, an 18% increase year over year and the second-highest total in the past decade.
At the same time, LA County's population shrank by 28,000 in 2025. More supply, fewer renters, higher vacancy rates: the math is tilting toward renters right now. If you have been on the fence about whether to rent or buy, your negotiating position on the rental side has improved.
What Zillow is forecasting
Despite the recent slide, Zillow is projecting that home prices will rise 1.2% both nationally and in LA over the next 12 months, assuming the economy avoids a recession. Analysts at HomeBuyingInstitute agree, calling the current period potentially the low point of this price cycle. The California Association of Realtors is forecasting a statewide median of $905,000 by the end of 2026, representing a 3.6% increase from 2025.
What this means for buyers and sellers
For Buyers
More leverage than a year ago
Homes sitting longer, sellers more open to negotiation
Less competition from other buyers
Watch out: if rates ease and sentiment improves, this window closes fast.
For Sellers
Pricing right from day one is critical
Buyers are watching value and days on market closely
Priced sharp, staged well, marketed properly — still moving
Overpriced listings are sitting and losing leverage every week.
For Anyone Watching
January always exaggerates weakness — it is the slowest month of the year
Spring market (March through April) will be the real signal for 2026
Do not read too much into winter numbers. Watch what happens in spring.
My take
The headlines are eye-catching but the math tells a different story. A 0.9% decline offset by Zillow's 1.2% forecasted increase means we are essentially flat. This is not a crash. It is a market finding its footing.
Everything right now comes down to three things: inventory, tariffs, and mortgage rates. With appreciation flat, wage growth ticking up, and rates coming off their peak, affordability is quietly tilting in buyers favor for the first time in a while. We are already seeing it show up in the data. Mortgage applications and buyer activity have picked up recently, signaling that buyers are re-entering the market.
That said, buyers are cautious and disciplined right now. They are not overpaying out of fear like they were in 2021 and 2022. The dynamic is more selective. Some homes are still getting multiple offers and drawing hundreds of open house visitors in a single weekend. Others are sitting with zero traction. The difference almost always comes down to pricing and presentation.
The market is at an inflection point right now, trying to decide which direction it is going to go. More than anything else, that direction will be determined by how tariff policy plays out and what it means for the broader economy. Spring will tell us a lot.
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