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Rising Interest Rates Cool Housing Market

  //house-home.news-articles.net/content/2026/01/29/rising-interest-rates-cool-housing-market.html
  Published in House and Home on Thursday, January 29th 2026 at 6:26 GMT by Los Angeles Times
      Locales: California, UNITED STATES

Interest Rates and Inventory: The Twin Engines of Change

The primary drivers of the December decline are demonstrably rising interest rates and a concurrent increase in housing inventory. As the Federal Reserve continues to raise benchmark interest rates, mortgage rates have climbed steadily, adding hundreds of dollars to monthly mortgage payments. This has effectively priced many potential buyers out of the market, reducing demand. Simultaneously, more homes are coming onto the market, offering buyers more choices and lessening the competitive pressure that previously drove prices upward.

"The increased cost of borrowing is the biggest factor right now," explains David Ramirez, a mortgage broker in Orange County. "People are still wanting to buy, but they're being much more cautious. They're taking their time, shopping around, and in many cases, deciding to wait for rates to come down or prices to adjust."

Inland Areas Feel the Brunt of the Correction

The downturn isn't being felt uniformly across Southern California. Inland areas, particularly Riverside and San Bernardino counties, are experiencing more significant price drops than their coastal counterparts in Los Angeles and Orange counties. This disparity stems from affordability. Inland homes were already more accessible to first-time buyers and those priced out of the coastal market. As interest rates rise, these buyers are disproportionately affected, leading to a greater decline in demand and, consequently, prices.

Coastal areas, while not immune to the downturn, benefit from a more resilient buyer base - typically higher-income individuals less sensitive to interest rate fluctuations. The limited availability of land and strict zoning regulations in coastal communities also contribute to a more stable, albeit cooling, market.

What's Next? Experts Weigh In

Real estate experts are cautiously optimistic, yet acknowledge the uncertainty surrounding the market's future. The consensus is that a significant crash is unlikely, given the underlying fundamentals of Southern California's economy and the continued demand for housing. However, a period of price stagnation or further moderate declines is certainly possible.

"We've been preparing clients for this possibility for months," says Sarah Chen, a real estate analyst at Pacific Coast Economics. "The unprecedented run-up in prices simply wasn't sustainable. This is a natural correction, a return to more normal market conditions."

Chen cautions, however, that a prolonged period of high interest rates could exacerbate the downturn. "If the Fed doesn't begin to signal a change in course soon, we could see a more substantial correction in the spring."

Looking Ahead: January and February as Key Indicators The coming months will be crucial in determining the market's trajectory. Housing tracker data for January and February 2026 will be closely scrutinized by analysts and industry professionals. A continued decline in these months would likely signal a more serious correction, prompting further downward revisions to price forecasts. Conversely, a stabilization or even a modest rebound would suggest that the December dip was indeed a temporary lull. For potential homebuyers, the current market presents a window of opportunity. While prices are still elevated, the reduced competition and increased inventory offer a chance to negotiate and find a home at a more reasonable price. However, buyers should proceed with caution and carefully assess their financial situation before making a purchase.