California Housing Affordability Tracker (2nd Quarter 2026) July 20, 2026
Our post provides an updated snapshot of housing affordability in California. Over the last few years, we have seen a rapid increase in California housing costs, driven by a dramatic increase in home prices and mortgage rates between 2020 and 2022. Home prices have stabilized since 2022: current prices are somewhat lower than they would have been if pre-pandemic trends had continued. Despite this, fewer California households can afford to buy a home today than before 2020.
Affordability is unlikely to improve if existing homeowners–or new builders–are unwilling to sell their homes at prices prospective buyers can afford following the rapid increase in mortgage rates in 2022. A complicating factor is that most existing homeowners are "locked-in" to mortgages with rates significantly lower than currently available. About 76 percent of California homeowners have mortgage rates under 5 percent, compared to current rates of about 6.5 percent. These homeowners face a significant additional financial cost to moving, further limiting the number of homes available for sale. This dynamic may explain why home sales remain low despite an increase in the number of homes listed for sale in 2024 and early 2025.
Monthly Jobs Report (June) July 17, 2026
Both Jobs Surveys Signaling a Soft Labor Market in June. The state lost 2,900 payroll jobs in June and May was revised downward to -15,600. Payroll employment has been flat since January. The household survey tells a more concerning story: since January, the number of Californians who are working has declined by more than 180,000 and the labor force has contracted by nearly 250,000 workers. The state's unemployment rate has declined of late but only because workers leaving the labor force are not counted as unemployed.
California New Car Registrations: May 2026 July 13, 2026
After Half-Year Slump, Strong Growth in May. Seasonally adjusted new car registrations dropped 8 percent from September 2025 to December 2025, then declined an additional 2 percent from December to April. In May, however, registrations grew nearly 7 percent—the strongest single month since December 2024.
Income Tax Withholding Tracker (Corrected) July 7, 2026
Correction: An earlier version of this post mistakenly understated withholding in June. This version reports the corrected tallies.
June Withholding Hits Monthly Estimates, With Fiscal Year Ending Above Projections. Income tax withholding in June came in roughly even with projections included in the May Revision and 11 percent higher than last year. The trailing 12-month growth trend remained solid at about 9 percent. Withholding ended the fiscal year $1.2 billion above the most recent budget estimates.
Inflation Tracker June 16, 2026
May data for the US show higher inflation from March through May. Between January and May 2026, prices for US consumers grew at an annualized rate of 5.5%. This is a much higher rate than the 2.6% annual growth in prices for US consumers in 2025. Recent inflation increases reflect a sharp increase in global energy prices: consumer energy prices were 23% higher in May 2026 than they were a year earlier. California data tell a similar story: between December 2025 and April 2026, California consumer prices grew at a 4.5% annual rate. Consumers do not expect increased inflation to last: unlike in early 2025, consumer expectations about inflation in the next five years increased only moderately in early 2026.
California New Car Registrations: April 2026 June 4, 2026
Slump in Registrations Continued Through April. Seasonally adjusted new car registrations dropped 8 percent from September 2025 to December 2025. After this substantial drop, registrations have not yet recovered—in fact, they declined an additional 2 percent from December to April. This slump is becoming an increasingly worrisome sign for California’s short-term economic trajectory.
Cannabis Tax Revenue Update (2026 Q1) May 27, 2026
For cannabis excise tax returns filed for the first quarter of 2026, the total amount of tax due is $144 million. With this latest data, we currently project cannabis tax revenues of $633 million in 2025-26. This forecast is just $10 million above the administration’s May Revision forecast. Looking further ahead, our preliminary revenue projection for 2026-27 is $642 million, which is $28 million above the May Revision forecast for that year.
The 2026-27 Budget: Permanent Business Credit Limitation May 18, 2026
The May Revision proposes to permanently place a limit on the amount of business credits that can be claimed against a corporation’s tax liability. This proposal presents a reasonable option to increase corporation tax revenues and, given the state’s structural budget challenges, warrants consideration. However, we also note some tradeoffs associated with a permanent limitation and identify several issues the Legislature may wish to consider regarding both the long-run effects of the proposal and the structure of the research and development (R&D) credit going forward.
The 2026-27 Budget: Sales Tax on Prewritten Software May 16, 2026
The Governor proposes extending the state’s sales tax to sales of prewritten software broadly, no matter how the software is delivered. We see merit in the general idea of modernizing the state’s sales tax and eliminating some of the arbitrary distinctions between taxed and untaxed sales. If the Legislature wants to address these issues, we recommend that it consider extending the sales tax to a broader set of digital products, not just software. We also recommend that the Legislature consider exemptions or reduced rates for software purchased by businesses.
California New Car Registrations: March 2026 May 8, 2026
Slump in Registrations Continued Through March. Seasonally adjusted new car registrations dropped 8 percent from September 2025 to December 2025. After this substantial drop, registrations have not yet recovered—in fact, they declined an additional 1 percent from December to March. This slump is becoming an increasingly worrisome sign for California’s short-term economic trajectory.
Updated "Big Three" Revenue Outlook (May 2026) May 7, 2026
Revenues Are Surging but Appear Unsustainable. Our updated forecast of revenues from the state’s three largest taxes (income, corporation, and sales) shows a $25 billion upgrade over the Governor’s Budget across the budget window (prior year to budget year.) This upgraded outlook is almost entirely attributable to higher expectations for income tax collections, which are being driven by enthusiasm around AI and the related stock market boom. As such, we continue to caution that these surging revenues likely are not sustainable. This suggests it would be prudent to approach the state budget as if we are at or near a revenue peak.
New IRS Data Show Pandemic Outmigration Eased in 2023 April 17, 2026
Recently released figures from the Internal Revenue Service (IRS) show that California continues to lose taxpayers to other states. The state has long had annual net outmigration (more people moving out of California to other states than moving in) but the trend increased notably for 2020, 2021, and 2022. The newly released 2023 figures show that pandemic-era outmigration has eased, though it remains elevated by historical standards.
California New Car Registrations: February 2026 April 7, 2026
Slump in Registrations Continued Through February. Seasonally adjusted new car registrations dropped 8 percent from September 2025 to December 2025. After growing just 1 percent from December to February, registrations are still 5 percent below the average level over the last couple of years. This slump is becoming an increasingly worrisome sign for California’s short-term economic trajectory.
California New Car Registrations: January 2026 March 11, 2026
Seasonally adjusted new car registrations dropped 8 percent from September 2025 to December 2025. After essentially moving sideways from December to January, registrations are still 5 percent below the average level over the last couple of years. This multi-month slump could be a worrisome sign for California’s short-term economic trajectory.
How Have Past Stock Market Downturns Affected Income Tax Revenue? March 9, 2026
Major Stock Market Downturns of the Past Have Set Off Multi-Year 30 Percent Drops in Income Tax Revenue. Stock market downturns pose significant but uneven risks to California's income tax revenues. Smaller, short-lived downturns typically cause little lasting damage, but major downturns have led to 30 percent revenue drops that lasted three years. The state faces heightened risks today given the concentration of California-based tech companies whose stock prices have been driving the market to all-time highs.