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alifornia's housing market is flashing a warning signal that could lead to slower home price growth or even falling prices in some areas. The state saw a 44% surge in homes listed for sale in February compared to the same period last year, with five of the top 11 US cities for annual inventory growth located in California.

    This rapid increase in supply is often an early indicator of weaker price growth as demand begins to outpace supply, leaving buyers with more options and forcing sellers to make concessions. Despite this, the median home listing price in California has continued to rise year-over-year.

    However, some experts predict a slowdown in home price growth over the next 12 months, with prices potentially trending flat or even slightly negative by the end of the year, particularly in certain markets. This is due in part to affordability concerns, as seen in San Diego where the median list price exceeds $948,000, far outpacing the local median household income.

    While California's housing supply is still below pre-pandemic levels, experts note that a more gradual market reset is likely, supported by low unemployment and mortgage default rates. This could lead to a moderation of price growth rather than a dramatic correction.

    In some California cities, including San Diego, Sacramento, and San Francisco, median list prices per square foot have actually declined annually in recent months. However, it remains to be seen whether these lower prices will translate into lower sales prices and falling home values. As inventory builds, experts predict that price growth will continue to ease and time on market will slow, but significant price adjustments are unlikely in the short term due to California's competitive and undersupplied markets.