California’s housing market is bracing for a turbulent second quarter, as rising insurance costs, slowing economic growth, and ongoing trade tensions converge to rattle consumer confidence, according to a recent analysis by the California Association of Realtors (CAR).
National economic output contracted for the first time since early 2022, with the U.S. gross domestic product (GDP) shrinking by 0.3% in the first quarter of 2025. The decline—well below economists’ expectations—was largely driven by a 41.3% spike in imports, minimal export growth, and a 1.4% drop in government spending. Slower consumer spending and mounting fears over impending tariffs also weighed heavily, the CAR report said.
In California, homeowners are preparing for a sharp spike in insurance premiums. Rates are expected to rise by an average of 21% in 2025, on top of a 10% increase last year. The hike—outlined in a new Insurify report cited by CAR—would raise the average annual premium by over $500, from $2,424 to $2,930. Contributing factors include growing climate risk models, regulatory changes, and fire-related losses from disasters like the Eaton Fire.
Additional pressure may come from higher costs on construction materials, if tariffs continue to escalate.
“Insurers are adjusting their pricing models to reflect future climate risks, not just historical losses,” the CAR report noted, suggesting that homeowners may face a long-term affordability challenge.
While the job market remains one of the few bright spots, it’s not enough to offset concerns. U.S. employers added 177,000 jobs in April, above expectations, with the unemployment rate holding steady at 4.2%. Gains were seen across healthcare, transportation, and hospitality. But federal employment continued to decline, and wage growth slowed to a 3.8% annual pace—its lowest since mid-2024.
Construction spending, too, showed signs of fatigue. After six consecutive months of growth, national outlays dipped in March, driven by declines in both residential and nonresidential activity. Notably, spending on home improvements fell 1.2%, and overall residential investment dropped 0.5%.
Still, the pause in multifamily construction’s decline may indicate stabilization.
Meanwhile, consumer confidence has fallen sharply. The Conference Board’s index dropped to 86.0 in April, the lowest since May 2020. The Expectations Index plunged to levels unseen since October 2011, as more Americans feared job losses and an approaching recession. Mentions of tariffs in open-ended survey responses hit an all-time high.
With key indicators sending mixed signals, CAR analysts say the housing market is likely to remain soft in the months ahead. Economic volatility, combined with insurance affordability and construction costs, could continue to dampen both demand and supply.
“Market fundamentals remain under pressure,” CAR concluded. “Tariffs and insurance costs could reshape homeownership calculations across California.”
