2026 Housing Market Outlook: What Buyers and Sellers Need to Know

As we look ahead to 2026, the housing market stands at an inflection point. After years of pandemic-era chaos, record-low rates, bidding war frenzy, and then the shock of rapid rate increases, the market is finally entering what experts are calling “The Great Housing Reset”—a prolonged period of gradual normalization, modest improvement in affordability, and renewed opportunity for buyers and sellers alike.

The National Picture: Gradual Recovery Begins

Most major forecasting organizations agree on the broad contours of 2026, even if they differ on specifics. Here’s what the consensus looks like:

Home Prices: Modest Growth, Not Correction

Home prices nationwide are expected to rise approximately 1% year-over-year in 2026, according to Redfin’s forecast. Zillow projects slightly higher growth at 1.2%, while other forecasters estimate 2-4% depending on regional factors.

This represents a dramatic slowdown from the double-digit appreciation of 2020-2022 and even the 5-8% gains of recent years. However, it’s not the price crash some predicted. Instead, home prices will grow slower than wages for a sustained period for the first time since the aftermath of the financial crisis.

What This Means: Homes won’t become dramatically cheaper overnight, but the combination of flat-to-modest price growth and rising wages will gradually improve affordability for buyers who’ve been priced out.

Mortgage Rates: Settling Into a New Normal

Mortgage rates are expected to hover around 6.3% for a 30-year fixed-rate mortgage in 2026, according to Redfin. Zillow and Realtor.com point to rates in the low- to mid-6% range, while Fannie Mae predicts rates could hit 5.9% by the end of next year.

What’s striking is the consensus that we won’t see rates return to the 3-4% range of the pandemic era. No one is talking about a return to mortgage rates in the 3% range—not seriously, anyway. That era appears to be over, at least for now.

What This Means: Rates will be lower than 2024’s peaks but remain elevated by historical standards. The improvement will help some buyers qualify but won’t restore the purchasing power of the ultra-low rate environment.

Home Sales: Finally Increasing

After years of stagnation, transaction volume is finally expected to rise. Existing-home sales are projected to increase less than 2% to 4.13 million properties in 2026 according to Realtor.com, while Zillow projects existing home sales will rise to nearly 4.3 million next year, up 4.3%.

The National Association of Realtors is more optimistic, forecasting a 14% nationwide increase in home sales for 2026, though some experts view this projection as overly bullish.

What This Means: More transactions means more inventory turnover, giving buyers more choices and reducing the frozen market dynamic of recent years. However, sales will still remain below the 5-6 million annual pace considered “normal” historically.

Inventory: Slowly Improving

Existing home inventory is expected to see an 8.9% increase, with new single-family homes growing by 3.1% according to Realtor.com. This represents meaningful improvement but won’t immediately solve the housing shortage.

The inventory increase stems from several factors: homeowners with rate lock-in anxiety finally deciding to move, new construction gradually adding supply, and some markets seeing reduced buyer demand at current prices.

What This Means: More choices for buyers, but still far from the inventory levels that would create a true buyer’s market in most areas.

The Great Housing Reset: What It Really Means

The Great Housing Reset will be a yearslong period of gradual increases in home sales and normalization of prices as affordability gradually improves, according to Redfin’s chief economist Daryl Fairweather.

This isn’t the dramatic correction some hoped for or feared. Instead, it’s a slow-motion adjustment where:

Incomes catch up to prices through wage growth rather than price crashes
Inventory gradually normalizes through steady construction and increased turnover
Rates stabilize at a “new normal” rather than returning to pandemic lows
Market psychology resets as buyers and sellers adjust expectations

Rick Palacios Jr., director of research at John Burns Research and Consulting, summed up the 2025 market with one word: “underwhelming”. The expectation is that 2026 will mark the beginning of improvement from that underwhelming baseline.

Regional Variations: Not All Markets Are Equal

While national trends provide context, housing markets are intensely local. The 2026 outlook varies dramatically by region:

Markets Expected to See Price Declines

Property prices are forecast to dip in 22 of the largest 100 U.S. cities. Most of the 22 cities where home prices are forecast to drop next year are located in the Southeast and the West.

These include some markets that overheated during the pandemic and now face correction as remote work patterns stabilize and migration slows.

Bay Area and Silicon Valley: A Unique Situation

The San Francisco Bay Area and San Jose present a more complex picture. The Bay Area (San Francisco and San Jose) seems to be an outlier among major California metros, with forecasts pointing towards stagnation or slight declines.

However, this doesn’t signal weakness so much as recalibration. San Jose’s median home price currently stands at $1,444,000, up 12% over the past year, but forecasts suggest this appreciation will slow or reverse modestly in 2026.

Current forecasts estimate a price decrease of approximately 5.2% in the Bay Area by April 2026, though experts emphasize this represents market adjustment rather than instability.

Why the Bay Area is Different:

Extremely high baseline prices make the region sensitive to rate changes
Tech sector volatility affects high-income buyer demand
Some out-migration to more affordable areas
But fundamentally constrained supply prevents dramatic crashes

Strong Markets

More affordable metros like Fresno, Bakersfield, and parts of the Midwest and Southeast may see continued appreciation as they remain accessible to buyers priced out of coastal markets.

Who Benefits in 2026?

Buyers: Improved Conditions, But Still Challenging

The Good News:

Affordability will improve as income growth outpaces home-price growth for the first time since the Great Recession era
More inventory means more choices and less extreme competition
Slightly lower rates than 2024 peaks improve purchasing power
Homes might be slightly more affordable in 2026, with inflation-adjusted home prices declining for a second consecutive year

The Reality Check: The improvement in affordability will be significant enough to lure back some house hunters, but homebuying will remain out of reach for a lot of sidelined buyers. Gen Zers and young families will feel the pinch of still-high costs, with many of them opting for nontraditional living situations to afford housing.

Strategy for 2026 Buyers:

Get pre-approved early as competition remains for well-priced properties
Be prepared for rates in the low-to-mid 6% range
Focus on value rather than timing the market perfectly
Consider less competitive neighborhoods or property types
Build relationships with agents who have market access

Sellers: Still Favorable, But More Strategic

The Good News: Seller’s markets will persist in most areas, particularly where inventory remains constrained. Well-priced, well-presented homes will still sell relatively quickly with competitive offers.

The Changes:

Days on market will gradually increase from pandemic-era extremes
Pricing strategy becomes more critical—overpricing will be punished
Sellers are rediscovering the importance of pricing correctly, with homes that sit on the market needing price reductions to attract buyers
Fewer automatic bidding wars mean better preparation is essential

Strategy for 2026 Sellers:

Price strategically from day one based on current data
Invest in presentation—staging, photos, repairs
Be flexible on timing and terms to accommodate buyers
Understand your local market—national trends may not apply
Work with experienced agents who can navigate the evolving market

Renters: Mixed Outlook

Demand for apartments will rise as supply falls in 2026, leading to rising rents in many metro areas, with nationwide rents expected to rise about 2-3% year over year.

However, rent affordability is expected to improve in 2026, with multifamily rents forecast to rise just 0.3% according to Zillow, suggesting regional variation in rental market dynamics.

For Renters:

Rent growth will slow but not reverse in most markets
Some markets may see actual rent decreases, particularly where apartment construction boomed
The rent-vs-buy calculation remains complex and personal
Building savings for down payment may be wise if rates continue moderating

Economic Wildcards That Could Change Everything

Several factors could significantly alter the 2026 forecast:

Federal Reserve Policy

If inflation resurges, the Fed might keep rates higher longer, dampening housing demand. Conversely, if recession threatens, faster rate cuts could accelerate the market recovery.

Employment and Economy

Many house hunters will remain priced out and/or limited by a stalled labor market, including some Americans who have lost their job—or fear losing their job—as AI takes a toll on the white-collar workforce.

Economic strength determines buyer confidence and purchasing power. Recession would cool markets quickly, while continued growth supports demand.

Construction and Supply

Homebuilders report the highest unsold, finished inventory since January 2010, which could pressure prices in new construction markets if builders need to move inventory.

Government Policy

Politicians on both sides of the aisle will respond to the widespread housing affordability crisis, introducing policies to lower costs, from YIMBY measures to zoning reforms. These changes could meaningfully impact supply over time.

Tech Sector Performance

For Bay Area and other tech-heavy markets, the continued performance of the technology sector and AI boom will determine buyer demand and wage growth.

What Experts Are Watching

Key indicators to monitor throughout 2026:

Monthly Inventory Levels: Rising inventory suggests improving buyer conditions; falling inventory means continued seller advantages.

Days on Market: Increasing time to sell indicates shifting leverage toward buyers.

Sale-to-List Price Ratios: Declining premiums over asking price show moderating competition.

Mortgage Application Volume: Leading indicator of coming sales activity.

New Construction Permits: Future supply pipeline visibility.

Employment Data: Particularly in high-wage sectors that drive housing demand.

The Bottom Line: Prepare for Gradual Improvement

2026 won’t bring dramatic change—no crash, no boom, just gradual improvement toward a healthier, more balanced market. After four years of pandemic-driven extremes, the U.S. housing market enters a new era.

For Buyers: Conditions are improving but remain challenging. If you’re financially ready, have stable employment, and plan to stay long-term, 2026 may offer better opportunities than recent years. Don’t expect perfection or try to time the market’s bottom precisely.

For Sellers: You still have advantages in most markets, but pricing strategy and presentation matter more than ever. The days of listing anything at any price and getting multiple offers are fading. Work with professionals who understand current dynamics.

For Everyone: The housing market is normalizing, not crashing or booming. This gradual reset will take years, not months. Make decisions based on your personal situation—financial readiness, life circumstances, and long-term plans—rather than trying to time macroeconomic cycles.

The 2026 housing market represents the beginning of recovery from years of extremes. It won’t solve affordability overnight, but it marks the start of a long, slow journey back to healthier market conditions. Those who approach 2026 with realistic expectations, solid preparation, and patience will find opportunities—whether buying, selling, or continuing to rent while building toward homeownership.

As economist Lawrence Yun notes, “Next year is really the year that we will see a measurable increase in sales”. After years of frozen markets and limited activity, 2026 finally brings signs of life returning to real estate. The question isn’t whether to participate, but how to do so strategically given your unique circumstances and goals.