Balancing Act: 2025 Monterey Peninsula Real Estate Market Recap

As we move further into 2026, the national housing market shows signs of stabilization: inventory levels are increasing (though remaining below pre-pandemic averages), buyers are achieving purchases below asking prices, and the mortgage rate lock-in effect is gradually diminishing. With a new Federal Reserve chair and ongoing AI-related developments, potential volatility remains. Locally in Monterey, demand for premium properties continues to hold firm amid broader challenges in California.

Skip ahead to the second half for the local numbers. Or stay with me for the macro first.

Federal Reserve’s New Direction: Chair Kevin Warsh

President Trump has nominated Kevin Warsh as the next Federal Reserve chair, bringing a hawkish perspective with certain qualifications:

• Potential rate reductions: Warsh has expressed support for lowering interest rates to promote economic growth and reduce borrowing costs. His historical emphasis on combating inflation indicates a cautious, data-dependent approach rather than aggressive easing.
• Quantitative tightening considerations: He advocates resuming quantitative tightening (QT), reducing liquidity, and selling Treasuries while redirecting focus from Wall Street to Main Street—actions that could influence bond and equity markets. Senate confirmation proceedings may moderate these positions, so don’t be surprised if we continue QE/money printing.
• Fiscal discipline: Warsh has described excessive government spending as a primary threat to economic stability, calling for reductions, tax increases, or entitlement reforms to address deficits and prevent overlap between monetary and fiscal policy.

National Housing Trends: Increasing Buyer Leverage

• Price negotiations: In 2025, 62% of buyers purchased homes below the original listing price, the highest proportion since 2019, with an average reduction of 8%, the largest since 2012. Opportunities for negotiation continue to expand.
• Inventory growth: Active listings increased 12.1% year-over-year in December 2025, though seasonal declines brought totals below 1 million homes, still 12.5% below 2017–2019 levels. Year-over-year growth has moderated for seven consecutive months.
• State-level variations: Seventeen states now exceed 2019 inventory levels; California remains approximately 3% below.
• Diminishing lock-in effect: Mortgages at 6% or higher now comprise 21.2% of outstanding loans, the highest share since 2015, potentially encouraging more sellers and increasing supply as rates align closer to current market conditions.
• Absence of prior bubble dynamics: Unlike the 2006 era of heavy equity borrowing, negative equity remains uncommon. Mortgage debt stands at 43.9% of GDP (down from a peak of 73.1%), and 40% of homes are mortgage-free (up from 33% in 2010). Real home prices are 2.4% below the 2022 peak.
• Home-flipping returns: Profits have declined to a 23.1% ROI, the lowest since 2008, due to elevated costs.
• 2026 inventory projections: Forecasts indicate a 9–11% increase in active listings (to approximately 1.18 million homes), according to Bright MLS, Compass, and Realtor.com, potentially moderating prices and enhancing affordability.
• Alternative perspective on rates: Housing challenges primarily arise from elevated prices rather than interest rates; Federal Reserve bond purchases could further stimulate demand and contribute to higher values.
• Trade deficit reduction: The deficit narrowed 39% to $29.4 billion (lowest since 2009), supporting GDP and reducing foreign debt reliance, though influenced by factors such as tariffs and potential demand softening.
• Proposed institutional buyer restrictions: Plans to limit large investors in single-family homes (representing only 2.5% of purchases) address concerns but do not resolve underlying supply constraints.

California Overview: Challenges and Opportunities

In 2025, companies including Chevron, Tesla, SpaceX, X, Oracle, Realtor.com, John Paul Mitchell Systems, In-N-Out Burger, and LandSea Homes relocated (primarily to Texas and Tennessee), citing high taxes, regulations, costs, homelessness, and safety issues. Prominent individuals have followed. Projections indicate potential worsening in 2026 due to proposed wealth tax measures, with economic impacts including a $50–70 billion state deficit and continued population outflows.

San Francisco shows renewed interest, driven by anticipated IPOs such as OpenAI and SpaceX, improving affordability for equity-wealthy buyers. Keep in mind the SF/Silicon Valley area is our largest feeder market, and our market historically tails that local market by 6–12 months—so we could see increased buyer activity locally from wealthy Bay Area buyers in 2026 as a result of a record IPO year.

Broader Developments: AI, Wealth, and Outlook

2025 featured substantial employment reductions (e.g., U.S. government ~307,000, UPS ~78,000, Amazon ~30,000, Intel ~25,000), attributed partly to AI adoption alongside factors such as overhiring and cost pressures. Comparable to the Industrial Revolution’s initial disruptions, AI may initially displace roles but ultimately generate opportunities in technology, healthcare, energy, and operations.

All top 10 U.S. residential transactions in 2025 exceeded $100 million, reflecting strong equity market performance and concentrated wealth growth.

Looking Back at the Numbers

As we reflect on 2025, Monterey County’s real estate market demonstrated resilience amid national headwinds, with increased inventory and longer market times signaling a shift toward buyer leverage. Sales volumes dipped compared to recent peaks, but prices held firm, particularly in premium segments. Below, key metrics across Monterey County overall, the Monterey Peninsula, and the $5 million-plus luxury market (2019–2025).

Monterey County Overall

The county saw modest gains in listings (average active volume), but sales and new listings declined from 2024. Price per square foot and median sales price rose, reflecting sustained demand despite extended selling periods.

Key trends vs. 2024: sales fell ~6% YoY amid higher rates; volume dropped ~7%; active inventory rose ~17%; price/sqft +1.5% YoY; days on market +26%.

Monterey Peninsula Focus

The Peninsula outperformed the county average, with rising new listings, sales, and volumes signaling renewed activity in our coastal enclaves. Prices remained elevated, though per-square-foot values softened slightly.

Key trends vs. 2024: new listings +9% YoY; sales +8%; active volume +18%; median sale price +5% to $1.65M; days to sell +50% YoY.

$5 Million-Plus Luxury Market

The ultra-high-end segment showed mixed results: sales decreased slightly and the number of new listings dropped, while sales volume increased slightly.

Key trends vs. 2024: sales volume increased ~2% YoY despite 23% fewer new listings. Median days to sell more than doubled to 50, and sales price to original list price fell to 90%—greater negotiation leverage for buyers in this exclusive tier.