According to a report from Realtor.com, California’s AI windfall is affecting two important places for the state’s residents: the state’s balance sheet, and its housing market.
AI-fueled gains have kept money flowing through the state’s tech sector and they’ve propped up high-end home demand in such tech centers as San Francisco while helping state government leaders plug a nearly $18 billion budget deficit.
Here’s a question, though: What happens if the California AI boom cools or, as some fear, the bubble pops? Realtor.com said a downturn could rip through the state like a house of cards, given how vulnerable California is.
The state currently is short an estimated 840,000 to 2.5 million housing units, leaving the market highly sensitive to any pullback in building or buying, Realtor.com said.
The website said that San Francisco is a clear case study of how tech-driven wealth can shape housing demand even when the broader market is strained.
Luxury Buyers Remain Active
Realtor.com said its data showed that the average luxury sale price grew from $2.48 million in 2024 to $2.65 million in 2025, an almost 7% increase. That figure is well above the year-to-date average for luxury sales statewide, which rose 3.2% from $1.97 million in 2024 to $2.04 million in 2025.
“Luxury is providing stability at the top, but it is not lifting the entire market,” explains Anthony Smith, Realtor.com senior economist. “Across California, luxury pricing has shown moderation without reversal, even as affordability pressures weigh heavily on the broader housing landscape.
The data suggest that luxury buyers are active and able to absorb higher price points, while lower-priced segments are more sensitive to mortgage rates and payment constraints, Realtor.com said.
“In that sense, luxury demand is acting as a stabilizer rather than a catalyst, limiting downside risk in high-cost markets without generating enough momentum to offset affordability headwinds statewide,” Smith said.
Realtor.com pointed out it’s about the timing.
The rebound in luxury homes in 2024 and 2025 follows a slowdown in 2022 and 2023—roughly aligning with the start of the AI-driven stock surge in late 2022.
Since the launch of ChatGPT in November 2022, AI-related stocks have accounted for 75% of S&P 500 returns, 80% of earnings growth, and 90% of capital spending, J.P. Morgan’s Michael Cembalest said. In the first half of 2025, AI-related capital expenditures surpassed the U.S. consumer as the primary driver of economic growth, accounting for 1.1% of GDP growth, a report from J.P. Morgan Asset Management said.
Keeping that context in mind, San Francisco’s luxury performance seems to be a signal that California’s market is increasingly tethered to a narrow source of wealth. And, Realtor.com said, if AI-driven wealth is helping hold up the ceiling, what happens to the rest of the market if that support softens?
Tech Sector is Shedding Jobs
The website said that San Francisco’s luxury strength may track the upside of the AI era, but John Macke, research manager at John Burns Research and Consulting, said the downside is harder for housing to absorb.
Alongside stock-driven wealth creation, tech also has been shedding jobs, raising the risk that housing demand narrows even if top-end pricing holds, Realtor.com said.
Tech companies eliminated more than 150,000 jobs in 2025, and AI is seen as a driving force of that change.
“While concentrated AI-driven wealth can support select neighborhoods and segments of the market, it doesn’t replace the demand lost when adjacent high-income jobs slow or decline,” Macke said.
Macke authored a study in late 2025 on how high-income job losses cool housing demand, and it noted the San Francisco Bay Area stood out as a key example.
In the Bay Area, Macke’s analysis found modest overall employment declines. Those job losses have slowed compared to a year ago, Realtor.com said, but remain negative year over year, and despite the spending and wealth associated with the AI boom, it has not translated into meaningful employment growth in the Bay area.
“Broad-based housing demand ultimately depends on buyers’ ability to qualify and afford homes, which makes labor market conditions a key signal to watch,” Macke wrote.
Composition may be the most important aspect of the labor market to pay attention to, Realtor.com noted.
The Types of Jobs Being Added is Important
What kind of jobs a region is adding is a key.
When growth skews toward lower-wage roles while higher-paid employment contracts, demand for for-sale housing tends to soften—especially in the middle of the market, where buyers are most rate-sensitive and qualification-driven, Realtor.com said.
“A key risk is the gradual narrowing of housing demand if revenue growth remains concentrated while employment growth stays limited. Even if top-end housing holds up, weaker participation from middle- and upper-middle-income buyers can weigh on overall market activity,” Macke said.
He said the main offset would be broader job growth, but with the U.S. labor market recently posting its worst non-recession performance in more than 20 years, that kind of broadening may be hard to count on.
The housing market isn’t the only part of the state’s economy that’s leaning hard on AI.
The state budget is, too. Personal income tax is California’s largest source of revenue, Realtor.com noted, and currently, it’s being materially supported by stock-based compensation flowing out of major tech firms.
Many of the companies fueling the AI boom compensate employees not just with wages, but also with stock options and when those options vest and become fully owned, they’re treated as ordinary income.
That triggers state and federal income tax withholding, Realtor.com said.
Tax revenue from stock-option withholding by some of California’s largest tech firms made up about 10% of all income tax withholding in 2025, Chas Alamo, principal fiscal and policy analyst with the Legislative Analyst’s Office, told CalMatters.
State’s Fortunes Rely on Small Group fo Earners
That’s roughly the same share as in 2024, and a sharp rise from just over 6% three years earlier, when Alamo first analyzed the data.
That means a growing share of California’s fiscal stability now hinges on the fortunes of a relatively small group of earners and an even smaller group of companies, Realtor.com said.
Risk comes with concentration: While AI-fueled wealth is providing a timely boost to state revenues, its volatility could spill over into other parts of the economy, like housing.
Even the perception of budget instability can rattle developers, weakening confidence just as costs remain high and permitting remains slow, Realtor.com said. In a state like California that already is short as many as 2.5 million homes, that kind of hesitation could deepen the housing shortage and prolong the state’s affordability crisis.
“Consumer confidence also plays a critical role in translating [sic] fundamentals into actual demand, ” Macke said. “For example, during the 2025 spring selling season, elevated economic and job-related uncertainty appeared to contribute to more hesitant buyer behavior, weighing on market momentum relative to earlier expectations.”
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