The Los Angeles real estate market is always evolving, but here in 2025, three key factors are shaping buying and selling trends more than anything else: rising insurance costs, interest rates, and low inventory. Whether you’re a homeowner, a buyer, or a seller, these trends are impacting affordability, demand, and the overall housing landscape.

1. Soaring Insurance Costs

One of the biggest changes in recent years has been the skyrocketing cost of homeowners insurance. This trend has been building for a while, but recent wildfires have accelerated the problem. Many insurance carriers have either pulled out of California altogether or drastically increased their premiums, leaving homeowners with limited and expensive options.

For those living in high-risk fire zones, the situation is even more severe. A few years ago, a homeowner in Los Angeles might have been paying around $3,000–$4,000 per year for insurance. Now, in fire-prone areas, premiums have soared to $9,000–$15,000 per year—and in many cases, the only available option is the California Fair Plan.

This increase is affecting both buyers and sellers. If you’re selling a home in a high-risk area, expect buyers to factor in these rising costs when considering affordability. For buyers, it’s critical to speak with an insurance agent early in the process to understand the potential costs and how they affect your overall monthly payments.

We recently closed a home sale near O’Melveny Park in Granada Hills, and right before it hit the market, a small wildfire broke out nearby. The buyer’s annual premium ended up being $11,000—a major expense that had to be factored into their decision. It’s a different market now, and these costs can make a big impact on affordability.

2. Interest Rates and Buyer Affordability

Interest rates have been a rollercoaster over the past few years. After peaking above 8%, we’ve seen some relief in 2025, with rates dropping below 7%. However, compared to the historically low rates of 2-3% from 2020-2022, today’s rates still feel high for many buyers.

While rates have softened, home prices in Los Angeles haven’t declined—they’ve actually continued to rise. This combination has made affordability a major issue, particularly for homes priced above $1.2 million.

For example, in LA County, once a home crosses the $1.5 million price point, the buyer pool significantly shrinks. Why? Because at these price levels, monthly mortgage payments (especially with high fire insurance premiums) can hit $10,000 or more. Many buyers, even if they love a home, are finding that they simply can’t qualify for a mortgage at these higher price points.

As a result, we’re seeing fewer multiple-offer situations in the higher-end market. Buyers who were pre-approved for $1.1M–$1.2M often find themselves priced out of the homes they love, which is leading to longer days on market for higher-priced properties.

3. Historically Low Inventory

The final major factor affecting the market is the severe lack of available homes for sale. Inventory remains at historic lows for several reasons:

• Interest Rate Lock Effect: Many homeowners secured ultra-low mortgage rates (under 3%) during the pandemic. Even if they want to move—whether for work, family, or lifestyle changes—the thought of trading in their low rate for a 6-7% mortgage keeps them in place. This means fewer homes are hitting the market.
• Seniors Staying Put: Many older homeowners who bought decades ago have seen their home values skyrocketand now have huge equity gains. However, selling could trigger major capital gains taxes, leading many to simply stay in their homes rather than cash out and move.

With two large demographic groups—locked-in homeowners and long-time owners avoiding capital gains taxes—holding onto their properties, the number of available homes remains extremely limited.

What Does This Mean for the Market?

The combination of high insurance costs, interest rates, and low inventory has created a market unlike anything we’ve seen before. Buyers need to plan carefully, budget for insurance costs, and be prepared for high mortgage payments. Sellers in high fire-risk areas need to factor in insurance costs when pricing their homes competitively. And for everyone in the market, low inventory means fewer choices, making preparation and strategy more important than ever.

If you have questions about buying or selling in LA, I’d love to help! Call or text me at 818-396-3311, and let’s talk about your real estate goals. I’m Scott Himelstein your LA Real Estate Agent!

Stay tuned for more updates on the Los Angeles housing market!