January 2026 Market Update

Happy 2026!  This is one of our favorite newsletters to write. Taking time to reflect on the year behind us offers perspective, while looking ahead allows us to make a few educated guesses about what the next year may bring.

So, what’s happened in the Santa Barbara real estate market in 2025?

Overall, 2025 was a year of slowly building momentum. It felt a bit like pushing a car from behind: still effort required, but now there’s some energy on your side—and things are finally rolling.  

The Data at a Glance

  • Total sales outpaced 2024 by 11%

  • Inventory levels peaked in July in the 380’s and gradually declined to the low 300’s by year-end

  • Interest rates trended downward

  • Home values remained relatively stable

Let’s unpack this…

2025 Sales

2025 wasn’t a banner year for sales volume, but a second consecutive year of solid growth is an encouraging sign. After the sharp slowdown that began in mid-2022—and one of the slowest sales seasons on record in 2023—this gradual recovery feels healthy.

2021: 2,217 sales

An 11% increase in 2025, following 12% growth in 2024, is meaningful. Even better, this improvement was consistent throughout the year, with 10 out of 12 months outperforming the prior year.

We still have ground to recover, but steady, gradual improvement is exactly what a sustainable market looks like.

Inventory

Inventory returned to more familiar seasonal patterns in 2025, with levels settling closer to what we’ve historically seen. As the year wrapped up, inventory naturally declined, which is typical for our market. Things tend to slow down between Thanksgiving and the New Year, as some sellers take a break and plan to relaunch their homes in the new year.

Just before Thanksgiving, on November 18, there were 326 active properties on the market. During the holidays, inventory dipped, and by January 6 only

232 properties were on the market. As expected, we’re already starting to see listings come back, with inventory rising to 247 properties by January 12.

We expect inventory to continue building as we head into the spring and summer months.

Interest Rates

It’s hard to talk about real estate without touching on interest rates. Over the course of 2025, rates trended lower. On January 1, 2025, the average 30-year conforming fixed rate was 7.07%, and by the end of the year, it had eased to 6.20%.

As we head into 2026, there appears to be continued focus from the current administration on lowering rates further to help with affordability. On Thursday, January 8, President Trump announced a directive involving the purchase of $200 billion in mortgage-backed securities. Following that announcement, rates moved lower, falling to approximately 6.01% by Monday, January 12.

Like most borrowers, we certainly prefer lower interest rates. At the same time, we tend to favor free-market dynamics. Short-term capital infusions can—and in this case did—bring rates down in the near term, but they are not a long-term solution to housing affordability. Without an increase in housing supply, lower rates can also place upward pressure on home prices.

Values

There’s no single perfect tool for determining whether home prices are rising or falling. Santa Barbara’s market is shaped by a wide range of home types and price points, with many variables and conditions influencing each sale. Because of that, our best overall indicator tends to be the median home price—though it’s important to remember that the mix of homes sold can vary significantly from month to month and year to year.

The 2025 median home price came in at $2,300,000. As we discussed last month, prices overall have remained relatively stable, with 2025 showing a 6% increase in the median price. The entry-level segment stayed strong and even improved slightly year over year, while higher price points offered buyers more room for negotiation.

One interesting shift occurred within the year itself. During the first half of 2025, the median home price was $2,537,500. In the second half (Jul.-Dec.), that figure dropped to $2,249,500. While prices are still up compared to 2024, this change suggests that momentum may be tilting toward some softening.

Homes priced in line with recent comparable sales are still selling quickly. However, when sellers stretch beyond neighborhood comps, those homes tend to sit longer, giving buyers greater negotiating power.

Final Thoughts… What is 2026 going to look like?

We’d be foolish to say we know exactly how the year will unfold. Big events can shift the market quickly and often without much warning.

That said, many of the extreme forces of recent years—3% interest rates, COVID-era demand, an unusually mobile population—are well behind us. Inflation appears more tempered, and while the economy isn’t booming, it’s holding steady. With that backdrop, our best guess is that interest rates may continue to ease gradually into the mid-to-high 5% range, while sales activity continues its slow upward trend. A roughly 10% increase in sales could bring annual volume closer to 1,500 transactions, still below the 1,800–1,900 range we saw between 2013 and 2019.

And prices? That’s the hardest part to predict. In a small market like Santa Barbara, even a handful of additional buyers—or the absence of them—can move the needle. At the moment, prices feel balanced on a fine edge. While modest shifts are always possible, we don’t anticipate any major moves in either direction.

Real estate is always evolving, and we enjoy keeping you informed along the way. If you have questions about the market, your home, or your plans for the year ahead, we’re always happy to help.

Thanks for reading — and as always, don’t hesitate to reach out!

Sarah Smith