California’s Economy to Grow Above Trend Again in 2025
The Golden State economy’s expansion gained traction in 2024, with robust growth in the first half of the year. The boom of demand for advanced semiconductors and artificial intelligence services, both domestically and in foreign markets, is a big positive for California’s highly-productive and lucrative tech sector, with positive spillovers to consumer spending by high-earning knowledge workers.
Lower interest rates will also help credit-sensitive parts of the state’s economy, like housing, and deregulation could benefit other sectors as well. The outlook for tourism is mixed, with the strong dollar and trade frictions potentially weighing on the willingness of foreigners to vacation in the U.S. Considering this mix of crosswinds, economic growth is likely to moderate to a still very healthy rate of 2.4% next year.
Housing, which has struggled in recent years, will probably rebound in 2025. California’s rental vacancy rate is nearly two percentage points below the national rate, a tangible measure of the state’s affordable housing shortage; multifamily construction will be a big driver of stronger construction. House price increases are likely to moderate further next year on the back of higher supply.
California’s housing market faces some downside risks. Insurers exiting the state’s homeowners’ insurance market and soaring insurance premiums are big negatives. In addition, changes to immigration policy could be a wildcard for rental demand; the Pew Research Center estimates that unauthorized immigrants account for about 5% of California’s population.
For a PDF version of this publication, click here: 2025 California State Economic Outlook
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