2026 Home Price Predictions: Will the Correction Continue?

0:00Will home prices go up or down in 2026? We have seen a historic run of home price appreciation, with values rising year after year, even as mortgage rates have remained high. But will that continue next year, or will we see prices flatten or even decrease in the year to come? Today, I'm giving you my 2026 home price forecast.

0:27Hey everyone, I'm Dave Meyer. Excited to have you here for what is simultaneously both my favorite and least favorite show of the year, predictions about the next year. I genuinely enjoy and love the data analysis and research that goes into making these predictions. And since I started doing this back in 2022, I've been pretty accurately in calling the direction of the housing market. But at the same time, it's a little nerve wracking and difficult to put these predictions out in public, especially this year when there's less data available due to the recent government shutdown. But despite those limitations, I choose to make these predictions for you every year because having an idea of where the market is heading, even if it's not 100 % accurate as no forecast is, this is still crucial as an investor because you invest differently in a rapidly appreciating market than you do in a flat or a correcting market.

1:26And don't get me wrong, you can invest in any kind of market, but you do need to plan accordingly. And that's what I'll help you do today. By the end of this episode, you'll know where the market is likely to go, what things to watch for in case things start to change, and how to build your portfolio accordingly in 2026. Let's do it. So making predictions about the housing market is difficult because the housing market is driven by so many different variables. On one side, you have all these things that impact demand. How many people want to buy homes? These are things like demographics, immigration, cultural shifts, domestic migration, investor activity, and so on.

2:07Then you have this whole other set of variables that impact the supply side, like the lock-in effect, construction trends, a longstanding shortage in homes in the United States, and so on. But to me, and I've been on this trend for a while now, affordability is the number one variable driving the market these days. Now, why this variable among all the other ones out there? Well, we have hit an absolute wall in terms of affordability. We are near 40-year lows. And by the way, if you haven't heard this term before, in context of the housing market, it just means how easily the average American can buy the average priced home.

2:53And that's at 40-year lows. It hasn't been since the early 1980s that it has been this difficult for the average American to buy homes. Now, this is really crucial because what has not changed is that people do want to buy homes. There is still desire to buy homes. But when you look at demand, this economic term demand, it's not just desire, it's desire and the ability to pay for it. We still have the desire side. The issue is that most Americans just cannot afford it. And in my view, if that doesn't change, if affordability doesn't move, not much is going to change in the housing market. But if affordability improves, so will the market.

3:36So affordability, this key thing, is actually made up of three individual variables. We have home prices. How much do homes actually cost? That should make sense. We have mortgage rates because the majority of homes are purchased with a mortgage. And so this matters a lot. And we also have wages. How much are people earning? So those are the three things and we're going to break each of them down one by one. So the first factor in affordability is mortgage rates. I did a whole episode about that, but the TLDR was that although I think they could come down a little on average, next year I don't think they're going to move that much.

4:11So I think it could modestly help affordability, but it's probably not going to be the thing that really changes the housing market. The second one is wages, and real wage growth can improve affordability. Real wages, if you haven't heard this term, is basically just a question of are incomes rising faster than inflation? If the answer to that is yes, you have positive real wage growth? The answer to that is no. You have negative real wage growth. But luckily right now, one of the bright spots for the economy in recent years since 2022 or so is that we have had real wage growth. Wages in America, incomes are growing faster than inflation, which means your purchasing power is going up.

4:52I hope that will stay up, but I think it's going to slow in the next year. We've seen inflation up to about 3%. The job market is definitely weakening. That reduces leverage and salary negotiations, and I think wage growth will slow. But the thing about the housing market and how this relates to our strategy as investors is that even in the best times, wage growth takes time to really impact affordability. So although wage growth does really matter, it's probably not a big factor in 26. So if rates aren't going to change that much, in my mind, in our base case, and real wages are not going to impact affordability that much, Does that mean that the housing market is doomed to have another year like we had this year where things are pretty slow and stuck?

5:38Maybe, but we still have one more variable, which is housing prices, which is why my base case for next year is for home prices to be flat or maybe down just modestly. If you want some actual numbers, I like to predict a range and a direction because I think as real estate investors, it actually hurts us to obsess about is it up 1 % or 2%. I think we actually should just say, hey, it's up modestly. It's down modestly. It's flat this year. It's going to go up a lot. There's going to be a crash. Those kinds of directional indicators, I think, are what's really important. And what I see is that home prices in 2026 are going to be between negative 4 % and positive 2%.

6:18You could call this flat if you want. I am personally leaning more towards the negative side right now. Again, we don't have data from the last couple of months, but the way the trends are going, I think if I had to pick where we'll be a year from now, I'd say negative one, negative 2 % year over year growth. So you might be surprised hearing me say this because all previous years I've said we've been flat or up because I genuinely believe that. And that was what actually came to be. But this year I see that changing. And I just want to say having these kinds of declines, this isn't crazy. Seeing modest declines in prices isn't a crash.

6:54It's not even unusual. It is a normal correction, and I should probably mention a buying opportunity. And that said, I am a little more pessimistic, I think, than other forecasters. I see Zillow at plus 1%. Some others are near flat, but most of them are modestly positive. But we're all still generally in the same range. Like, honestly, being plus 1%, minus 1%, it's kind of flat, right? So that's what most people are saying. And I think the takeaway here, whether you think it's plus 1 % or minus 2%, is the same. Appreciation is going to be slow at best. It might be negative. We can't know right now with the little data that we have, but we have to not count on appreciation.

7:36I think that's the main takeaway for us as real estate investors. Maybe we'll get 1%. That would be great. Maybe it'll be negative 1%. Honestly, whatever. If you're counting for flat or you are not counting on appreciation when you're underwriting your deals, you can still invest in this market. But that's the main takeaway I want you all to have right now is that you should not assume you're going to get appreciation in 2026. So that's my belief about what's going on in terms of nominal prices. It's going to get a little wonky, but stay with me. Nominal prices means not inflation adjusted. This is the price that you see on paper.

8:14This is the price that you see on Zillow. People are split on whether that's going to be up a little bit, down a little bit. But what almost every forecast that I believe in that I think is reputable, all of them agree that real prices are going to be negative. And again, real in economic terms just means inflation adjusted. So every forecast I see believes that compared to inflation, home prices are going to go down. So even if prices on paper go up 1%, but inflation stays at 3%, then real home prices have declined 2%. Real prices are down. And even though I'm saying I think the most likely scenario is that nominal prices are down next year, I feel much more confident that real prices will be down in 2026.

9:02That much seems pretty clear to me. So that's my base case. It's what I've called the great stall in recent months as you've listened to the podcast. And it's still what I think is the highest probability of happening next year because affordability is too low. Rates will come down a little bit, I think, but not that much. Wages aren't really going to help us one way or another. And prices, if they flatten or modestly decline, that's how we get into the stall period where affordability gradually gets restored to the housing market. That is the base case. But I should say that when I make these forecasts, I like to be honest about my confidence level.

9:39And I just want to say that this year, it is lower than previous years. Last year, I felt really confident about what I said was going to happen. That was pretty accurate. This year, I think the great stall is probably a 50-ish, maybe 60 % probability, which means that we have a 40 or 50 % chance that something else could happen. And I'll give you some alternative forecasts and predictions right after this break. Here's the thing about traveling. If you buy food at the airport, a burrito, salad, bag of peanuts, you start wondering if you should have opened a savings account for snacks. So wouldn't it be great if you could actually earn money while you're traveling?

10:18Well, you can. Airbnb has something called the co-host network. While you're away, you can hire a vetted local co-host with hosting experience to help take care of things, communicating with guests, preparing your space, managing reservations. Everything runs smoothly while you're off making memories. Your home might be worth more than you think. Find out how much at airbnb.com slash host. Here's the thing about traveling. If you buy food at the airport, a burrito, salad, bag of peanuts, you start wondering if you should have opened a savings account for snacks. So wouldn't it be great if you could actually earn money while you're traveling?

10:50Well, you can. Airbnb has something called the co-host network. While you're away, you can hire a vetted local co-host with hosting experience to help take care of things, communicating with guests, preparing your space, managing reservations. Everything runs smoothly while you're off making memories. Your home might be worth more than you think. Find out how much at airbnb.com slash host. So I tried explaining a sandwich lease to my insurance guy once, and he just blinked at me like I made it up. And that's sort of the thing, right? Most insurance companies don't understand how we invest. You go vacant for a few weeks, you switch strategies, you hold stuff in an LLC, and suddenly your coverage doesn't fit.

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11:50Before the break, I shared with you my base case. It's what I think is the most likely scenario to happen next year. And that's having pretty flat or maybe modestly declining nominal home prices next year. And I think pretty confident that real home prices are going to go down unless one of these other X factors happen, which is what we're about to talk about. So what else could happen in the housing market? To me, it still all comes down to affordability. As you'll remember, my base case is saying affordability not going to change that much. It's just going to gradually improve. But what happens if it goes up a ton?

12:27What if affordability gets way better? What if it goes down and actually get worse? Are there scenarios where affordability really does move more than my base case? Yes, absolutely. That is possible. I don't think it's the most likely thing to happen, but I want you to understand all of the different scenarios that could play out next year. And to me, there is one really big X factor that I am going to be keeping a very close eye on next year because it could cause what is known as a melt up, basically a huge surge in home pricing. So when I'm asking, could affordability get much better and send prices up?

13:05Yes, there are a few routes to that. But to me, the most compelling one, the thing I'm going to watch most closely is something called quantitative easing. I went into this a lot in the episode predicting mortgage rates. So you can listen to that again. But if you missed it, it's basically the Fed using one of its emergency tools to get mortgage rates down into the mid or low fives, maybe even lower. We don't know. Quantitative easing. It's basically they go out and frankly, print money to create demand for mortgage backed securities and bonds. This pushes down yields, that pushes down mortgage rates, and that could increase the demand in the housing market a lot, which could potentially push up prices.

13:48Hopefully that makes sense, right? Because I don't believe, regardless of what happens, the Fed cuts rates a bunch of times. I still don't think without quantitative easing, we are getting to the magic mortgage rate that we need in the United States to unlock the housing market. Research by Zillow, John Burns Real Estate, a couple different economics firms have all gone into this. And they say that the magic number you need to get to to get people off the sidelines, to free up inventory, to restore transaction volume to the market is like somewhere between five and five and a half percent. I just don't see that happening next year without quantitative easing.

14:26So the big question for 2026 in the housing market to me is will there be quantitative easing? And frankly, I think the chances of it happening are going up like every single week right now. The Trump administration has continued to prioritize highs affordability, particularly in the housing market. And as we've seen other parts of the economy start to falter and weaken, like the labor market, I think the chance that the Fed dips into its toolbox to stimulate the economy continues to go up. Now, I don't think this will happen right away in 2026. I think the earliest it will probably happen is in May because President Trump, he actually the other day said he already knows who he wants to name Fed chair, but he can't do that until Jerome Powell's term is up in May of 2026.

15:16So that's when we would probably seriously start looking for this to happen. I don't know if it'll happen on day one, but, you know, it might happen sometime after May. So if that does happen, and I call this the upside case, you know, you have your base case, which is, you know, what you think is most likely. Is there a more positive case? That's usually called an upside case. So my upside case for is we get quantitative easing, affordability improves, and then what? In that case, I think we see prices go up somewhere maybe between 2 % and 6%, maybe up to 7 % if they really get rates down into the fives.

15:52Maybe up to 7 % if they get mortgage rates down in the fours, but that seems unlikely. And that's what I see happening. Now, I know a lot of people are saying if there's quantitative easing, if the Fed cuts rates, we're going to see an explosion in appreciation. They're going to go up 10 % again, like during COVID. I don't buy that personally, because we know that when rates went up, not only did it drive down demand, but it drove down supply as well, right? That's the lock-in effect. That's why prices haven't fallen, because low affordability doesn't just impact demand, it impacts supply at the same time.

16:29Both of them are low right now. So in my opinion, if rates come down, yeah, it's going to bring back demand, but it is also going to bring back supply, right? This will break the lock-in effect. So more people will be listing their properties for sale. More people will be looking to move. And so in this quantitative easing scenario that we're talking about, I think the real winner is going to be transaction volume. We are going to see more homes bought and sold. That will help. And there will likely be upward pressure on prices, but not like COVID. That is unusual. Seeing 10 % appreciation might be a once in a lifetime thing that we don't see again for generations.

17:11Of course, if they drop rates down to 2 % or 3%, maybe that will happen. But I think that is not the case, even if there's quantitative easing. So I would expect positive appreciation in this scenario, good appreciation, really good for investors, but nothing crazy like COVID. The other thing I should mention is that if this happens, it will probably happen amongst a backdrop of a slower economy. So people may not want to make huge economic decisions like buying a house when they're fearful about their job. So we have to temper our expectations for what might happen if there is quantitative easing.

17:47Now, I told you my base case. I think that's about a 50, 60 % chance of happening. When we talk about the upside cases, quantitative easing, I think it's getting more likely. I actually think it's about a 30 % chance that this happens. And we'll talk about how to account for that in your own investing in just a minute. But I also want to talk about downside because, yes, there is a chance that affordability gets better. There is also a chance that affordability gets worse. Right. How does that happen? Well, it probably happens if inflation stays high. Right. If inflation goes up, it's been going up four months in a row.

18:22It is nowhere near where we were in 2021, 2022. So people overuse the word hyperinflation a lot in this country. 3 % is not hyperinflation. Four months in a row of growth is not hyperinflation. We are nowhere near that. But if inflation continues to creep up and mortgage rates go back up, I think there is more downside. I'm not saying that's going to be a full on crash, but I think there's more downside below one to 2%, right? Could a crash happen and it really get bad? Sure. But on top of rates staying highway, what we need to see is forced selling, right? We've talked about this on the show, but the thing that takes a correction to a crash is when homeowners are no longer able to afford their mortgages and they are forced to put their homes on the market to avoid foreclosure or as part of a foreclosure.

19:09Now, right now, delinquencies, they're up a little bit, but they're still very low by historic standards. They are below pre-pandemic levels. But what I am saying is that there is no evidence that a crash is likely at this point. If people's predictions about AI just destroying the labor market come true and we see unemployment go up to 10 percent, yeah, there is a chance that there is a real estate crash, but that still remains unlikely. I think even in this scenario, maybe prices drop 5 to 10 percent. I have a really hard time, Even in a downside case, imagining more than a 10 % drop in 2026, it seems just extremely unlikely to me.

19:51But the chance that we see, you know, 5 % declines, 7 % declines, low, but I'd say it's maybe a 10 % chance because we just don't know. There could be some black swan event that we don't see coming that negatively impacts the housing market. We always have to remember, even though we can't predict them, we have to remember that these things exist. That is part of being an investor. and we can't just ignore them and pretend that they don't happen. They are out there. So the question then is, what do you do? How do you use this information where I've just said, yeah, I have a base case, but it's maybe 50, 60 % likelihood.

20:27There's a 40 % chance that something totally different happens. How do you invest in that kind of market? I'll tell you how right after this break. Wouldn't it be great if your houseplants paid rent while you were out of town? I mean, they've got the whole place to themselves, lots of sunlight, zero responsibilities. But no, they just sit there waiting for someone to spray them with some cool mist like a bunch of leafy loafers. But guess what? Your home actually could be earning you money while you're not there. Airbnb has a great feature called the Co-Host Network, which makes hosting your home so easy.

20:57If you live far from your property or are away for extended periods, you can hire a local co-host to take care of the hosting for you. These co-hosts are vetted locals who already have experience hosting on Airbnb. A co-host can handle all the details like messaging guests, creating your host space and managing reservations. so everything runs smoothly. It's a practical way to earn a little extra money, maybe even some cash toward your next trip. Plus, you get to share your place with someone traveling to your area while you're off making memories somewhere else. Your home might be worth more than you think.

21:25Find out how much at airbnb.com slash host. Wouldn't it be great if your houseplants paid rent while you were out of town? I mean, they've got the whole place to themselves, lots of sunlight, zero responsibilities. But no, they just sit there waiting for someone to spray them with some cool mist like a bunch of leafy loafers. But guess what? Your home actually could be earning you money while you're not there. Airbnb has a great feature called the co-host network, which makes hosting your home so easy. If you live far from your property or are away for extended periods, you can hire a local co-host to take care of the hosting for you.

21:55These co-hosts are vetted locals who already have experience hosting on Airbnb. A co-host can handle all the details like messaging guests, creating your host space, and managing reservations, so everything runs smoothly. It's a practical way to earn a little extra money, maybe even some cash toward your next trip. Plus, you get to share your place with someone traveling to your area while you're off making memories somewhere else. Your home might be worth more than you think. Find out how much at Airbnb.com slash host. Okay, let's say you're one property's mid-flip, one's between tenants, one's on Airbnb.

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24:19So far, I've told you about my base case, which is the Great Stall, the potential for quantitative easing to bring us into an upside case, and a scenario where the labor market really breaks and inflation stays high where maybe we have more downside. These are obviously three pretty different scenarios. So the question is, how do you invest in an era of uncertainty and low confidence? How do we invest when there are multiple likely outcomes? There's no right answer to this, but I will tell you how I am doing it. I am first and foremost preparing for the great stall. I think that is the most likely scenario.

24:55And the whole idea of making forecasts is to not get paralyzed by all the different outcomes, but to have a plan, but to remain somewhat flexible. So I'm going to plan for the great stall because I know this might seem counterintuitive, but I actually think it could be a great time to buy, right? If we are in a scenario where prices are flat or going down on average, that means you can get great assets at a discount. Now, of course, in these kinds of scenarios, there's also the risk that you might buy a property and the value of that property goes down more once you buy it. But in the great stall, the downside risk of that is not so great.