Redfin: The Great “Reset” Starts in 2026

0:052026 is shaping up to be the start of what Redfin calls the great housing reset a long slow period where affordability improves and the market normalizes, not a quick flip or a recession. I'm Dave Meyer, and today I'm joined by Redfin's head of economic research, Chen Zhao, to unpack their new annual predictions report. We'll dive into each of their 11 predictions and walk through the headline calls from rate cuts to sales inching up, rents re-accelerating, and which markets are likely to heat up or cool down. This is On the Market. Let's get into it. Chen, welcome back to On The Market. Thanks so much for joining us again.

0:44Thanks so much for having me, Dave. This is one of our favorite shows of the year, hearing what Redfin has for predictions. So maybe just start by telling us sort of like big headline. What are you seeing? What's the big top level narrative about the market in 26? I'd say the headline is that we see the housing market taking a bit of a turn. I think it's already starting a little bit this year, but we think it's going to continue next year. And it's going to be a bit of a longer, what we're calling a reset of the housing market, where we think affordability will start to slowly change. And affordability really has been the big challenge for the housing market, as we all know.

1:23But there's no silver bullet. There's no magical fix. It's going to take a while. And we think next year is the start of better affordability for homebuyers. That is music to my ears. I think I saw something you all put out that affordability was like the best it's been in two or three years, just in the second half of 2025. So it seems like that trend is already emerging. Yes, I think we're starting to see the beginnings of that trend in the second half of 2025. So namely, the two important factors are mortgage rates and home prices. Right. So we know that mortgage rates have come down a little bit.

1:59We expect them to stay lower. We can get into more of that. And then home prices, we know the home prices are not growing as fast as they were. This has to do with the shift from a seller's market to a buyer's market. And we can talk about how we expect that to continue for the next few years and what the underlying forces are. All right, great. Well, I tend to agree with the overall sort of thesis here. I think you guys called it the housing reset. I've called it sort of the great stall where I think prices are just kind of stay stagnant for a while. But let's get into the specific predictions that you all have.

2:34So what is the first one? The first one is about mortgage rates. So right now, mortgage rates are in the low sixes, 6.2%, 6.3%. We think they're staying here. I think another way of putting this is that we don't expect mortgage rates to get into the fives, not for any sustained period of time. We know that mortgage rates fluctuate. Sometimes you get a little bounce down, but I don't think it'll stay there. We also don't really expect mortgage rates to get back up to 7 % either. I think the important thing they're here to focus on is, of course, always the Fed and what they're thinking about. And they're always balancing this dual mandate that they have, right?

3:12So is it preventing high inflation, just trying to keep inflation low and steady, and also trying to keep unemployment from going up? So right now, the economy is in a very delicate balance. We know that the higher tariff rates have slowed economic growth. They also threaten to increase inflation, even though we haven't seen as much of that so far. But that means that the Fed has a really unique challenge on its hands. So even for the meeting that's happening next Wednesday, it's a bit of an open question. What are they going to be doing going forward? But because they're in this delicate balance, there's not much room for them to cut a lot.

3:51But we also don't think they're going to be hiking. So that means we're sort of stuck here with where mortgage rates are. And then the other thing you have to keep in mind is that there's this big transition happening next year with the Fed. The president will be nominating a new chair of the Federal Reserve. The chair is only one of 12 votes on the FOMC. So, you know, contrary to some, you know, some of the stuff that you see in the press that, you know, the chair of the Federal Reserve does not set interest rate policy. He or she is one person on that committee, but it is a very important person.

4:24And that transition is something that we also have to keep really close tabs on. Got it. OK, so not expecting a lot of movement either way. You know, it does seem kind of stuck. We have these dual, I guess you would call threats to the economy right now where inflation has been. We don't have a lot of inflation data for the last couple of months, but, you know, inflation prior to the government shutdown had been ticking up a little bit. and job losses. It seems like every print tells us a different story. So it's just like really hard to understand what's going on there. And until we get clear line of sight on one of those things, and like which one is really going to be the bigger issue or which one gets cleared up first, I agree with you that it's not going to move much.

5:06I'm curious, you know, just the last couple of days, the Fed stopped quantitative tightening. Do you think there's any chance that the Fed does something more dramatic next year to impact mortgage rates, like maybe quantitative easing or something like that? I don't think so. I think that the communications that we've gotten from the Fed is pretty clear on this, that they want to pivot away from mortgage-backed securities and pivot towards a portfolio of treasury securities, right? And this idea that's been floated a few times, I've seen some op-eds about it, saying, hey, hey, look, higher mortgage rates is really killing the housing industry.

5:47Can we do something for housing? Maybe that means the Fed buys MBS. It's really hard to imagine that they would choose to do something like that when you still have so much lingering inflation risk from higher tariff rates. Because you have to remember that housing is still the largest component of course, CPI or PCE, whichever your favorite measure is. And so if you were to stoke the housing market right now, what you would see is that home prices would just shoot up. And they really just like, you know, after all the stars and PTSD from the last few years with high inflation, I just can't imagine that they would really choose to do that.

6:28And, you know, Chair Powell has been asked about this a few times in his press conferences, and he has said each time very consistently, the problem in the housing market is that there needs to be more supply. Right. And we all know this very well. We say it all the time. That's a very hard problem to solve. And put another way, I think another way to look at it is in the housing market, what we need is for prices to come down. We're in a new economic era now after the pandemic where rates are just going to be sitting higher. I often like to talk about this in terms of people's metabolisms. As you age, your metabolism changes.

7:09You need to change what you eat. And it's a little bit like that for the housing market. So we actually do need to just see lower home prices. That's the right way to get the housing market back to a healthy state. I agree with you there. So do you think that's going to happen? Maybe I'm skipping ahead on your predictions, but do you think that will happen, that we'll see home prices decline? We're already starting to see it this year. So we started the year with home prices increasing about 5 % year over year. We're down to about 2%, 3 %-ish, depending on exactly how you want to measure it, what specific metrics you want to look at.

7:42So it's come down a lot. And it came down a lot because the change of home buyers to home sellers has changed. Right. So Redfin has this proprietary metric that we put out that we call active buyers and sellers. So sellers is really easy. It's just the amount of inventory in the market. The number of buyers is something that we impute for some from some of our proprietary data, where if we can see how many homes are selling and we know how long it takes people to find homes and how long it takes to sell homes, we can put all that together in a model and say this implies that there are this many buyers in the housing market actively looking right now.

8:18And what we saw was that that gap got really large in the spring of this year. There was about 37 percent more home sellers and home buyers across the country. And most housing markets were tipping from being sellers markets to being buyers markets. So that ratio of sellers to buyers has a very close relationship to home price growth with a lead of about six months or so. So what we're seeing is that that shift has led to home price appreciation really slowing down. And it's hard to imagine, you know, as we continue to follow this metric and that gap continues to be historically large, that it's hard to imagine that home price growth will accelerate again.

9:03And then especially if you layer on top of that, what we see happening with demographics. So we know that immigration into this country has more or less halted. We also know that the underlying demographics of the country means that there's going to be smaller populations going forward. that it's really hard to imagine that home prices will actually be appreciating that rapidly in the near or, you know, medium term. But on the other hand, it's also difficult to imagine that home prices will really be falling dramatically. Because as we all know, people don't have to sell their homes, you can choose to rent it out, you can choose to continue to live in it.

9:40And we actually put out a report, I believe it was last week, looking at delistings. And we saw that the fraction of homes are being delisted in 2025 was about five and a half percent. That was up from about 4.8 percent last year, which doesn't sound like a huge increase. But that fraction has been very constant, like below 5 percent for the last eight to 10 years. So that means that that increase is actually meaningful. It doesn't sound like a huge amount, but it's a pretty meaningful increase. And what we saw was that the homes that are being delisted are people who bought more recently, they don't want to sell where buyers are willing to pay right now.

10:21So buyers and sellers are just sort of far apart. And so as long as home sellers aren't willing to go where buyers need them to go, it's actually very hard for prices to also fall. Yeah, I actually we did a whole show on that report about delistings because I think it's super interesting. And And to me, it just reflects that sellers are responding appropriately to the market, right? Because I think a lot of the crash narratives that you hear about are, right, you know, there's going to be panic selling or there's going to be this like sort of downward spiral of increasing inventory. But what you're seeing is a normal reaction.

11:00People don't want to sell at a loss. They don't want to, you know, and they don't have to. There's no forced selling going on. So they're just choosing not to sell. I think it's personally I'm curious to see if they come back on in the spring. But because I have a lot of friends who like a house flippers, a lot of them are pulling them off, you know, and we'll do it in the spring. But I think that to me is a sign that you're correct, that it's going to be sort of a boring year price wise for the housing market. Yeah, I mean, we're going to continue to publish this delisting data pretty regularly.

11:30And we will also be publishing, you know, who is delisting and are they relisting the home? So we should see that in the spring if they are coming back on the market. You know, it is boring, I guess, in some sense to say, look, home prices are going to maybe increasing like 1 % or 2%, like something very low. Right. But it's actually a meaningful change for buyers, because what that means is that home prices are growing slower than wages. And that is what buyers actually need. They need time for wages to catch up to where home prices are because the home prices are not going to be falling. This is the only mechanism that we have in order to get to this place where we need to go, where, you know, homes are more affordable for people where their incomes actually are.

12:14And that's what we think will be happening next year. So that is your second prediction, right, for next year? Yes. Essentially, at home prices are going to be growing slower than wages. And this is the step that you need for affordability. But importantly, this kind of progress is very slow. So it might not even be very noticeable to a lot of buyers after the first year. We don't expect affordability to, you know, all of a sudden jump back to where it was before the pandemic. It's going to be a slow process, maybe five to six years. It might take a while for buyers to actually notice, hey, affordability has gotten better.

12:51That makes sense. And just for everyone who is listening, we've been talking about this on the show recently, but what Chen is talking about also reflects the difference between nominal and real home prices because chen said she prices might go up one to two percent that's the price you see on redfin if you were going to go look you know but when you actually compare that increase to inflation to wages they're actually negative and i know that sounds negative to some people but that means affordability is improving that's how we're actually getting affordability and you know right now it's baby steps towards affordability but we can get back towards meaningful improvements in affordability over time if real home prices stay kind of flat and wages keep growing.

13:34That's a normal way that we get affordability back into the housing market. All right. So we've gone through our first two predictions from you, which was first about mortgage rates dipping into the low sixes but staying there. Prediction two, home buying affordability will improve as wages grow faster than prices. What's the third one? The third one is about sales. So we think that sales will inch up just slightly. next year. So we're thinking about existing home sales very specifically. It's been about 4.1 million. It's going to be 4.1 million again this year-ish. Next year, we're forecasting 4.2 million.

14:11It's not a lot. Historically, it's very, very low, actually. It's only up about 3 % from where we think we will end this year. I think that the increased affordability means you just get a little bit more activity in the market. But by and large, what we're describing with buyers and sellers, really just being at the stalemate means that you're not going to get this huge pickup in the housing market next year. I hope you're wrong about this, but I agree with you. I just think for this whole industry, it would be great if we had more sales volume. It just feels like it's been so sluggish and slow.

14:47And for anyone who's a lender, an agent, it's been a tough slog. And Hopefully though, at least this is a sign in the right direction. It's got to bottom out at some point, right? And maybe this means that we're moving towards better home sales volume, maybe not in 2026, a little bit better, but maybe in the years after that, we'll start getting towards a more normal level of sales volume. All right. So those are your first three predictions. We do have to take a quick break, but we'll be back with Chen Zhao from Redfin right after this. Do you ever look at your bank accounts and think, all right, I should probably be paying closer attention to this.

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17:47Welcome back to On the Market. We are going through Redfin's housing predictions for 2026. So far, we've talked about mortgage rates, homebuyer affordability, home sales. Chen, what is the fourth prediction Redfin has this year? It's about rents. So as we all know, rents have been really flat to slightly declining for a number of years now. We think that next year, rents will start to tick up just a little bit, probably towards the back half of the year. We We know that multifamily construction has really slowed. There's also increased demand from people not buying a home for renting. So the combination of those two things means that we probably just get the smallest uptick in rents.

18:29It might mean that, you know, you're talking about this difference between nominal and real price growth. Right now, rents are falling on a real basis once you adjust for inflation. Sometimes by some metrics, they're actually falling on a nominal basis. We think we might get to somewhere where it's flat on a real basis. The rents are keeping up with inflation, in other words. And that's based on mostly just the supply glut that we've sort of been in for multifamily dissipating. Exactly. I think that's the main motivation here. But we also think that this continued affordability challenge, that's just going to take a long time to work through on the purchase side, means you just get higher demand still.

19:08We also know that the economy has gotten a lot weaker. the labor market's weaker, we're sort of like on the edge of a recession, probably won't fall into a recession, but that will keep enough people renting rather than buying. That's interesting because I noticed the same thing. I saw some stat that, you know, the unemployment rate for people under 25 is like 9 % right now. You know, like these, that these kinds of numbers that I don't know if we go into a recession or not. But it made me wonder if it will weigh on household formation, because I think you're right, we'll have a higher percentage of people renting.

19:44But for rental demand to keep up, we need household growth. But I'm curious what you thought, if you have any thoughts on that, if that's going to slow down or where that will go. We do think that the slower economic growth will weigh on household formation a little bit. But the economy, you know, there's a lot of headlines right now about the negative jobs data that we're seeing. The government shutdown means that we just haven't gotten great official jobs data. So we still need to wait for that. And the reality of the labor market is that it has slowed down a lot, but it's still staying afloat and the economy is still staying afloat.

20:22So that makes me think that we won't get a huge impact yet on household formation, but housing costs remain high. So we do think there are going to be some impacts on things like household formation and also on things like people deciding to start a family. So our fifth prediction is that, you know, affordability means people have more roommates. We say fewer babies, meaning that, you know, maybe you want to get into a bigger home before you start to have kids. But, you know, you're finding that to be really challenging. So you're going to delay that for a little while. And as I was saying before, we do think housing affordability will improve, but it's going to take a number of years.

21:06So that will weigh on some of these factors for families. Got it. OK. I mean, that makes sense to me. I do think people are stretched and it's going to be hard for people to go out and form a new household. Just for everyone knows, like household formation, it's a little bit different than population growth. It's basically measuring the total demand for housing units. So, for example, if two roommates are living together, then they each decide to go out and get their own apartment. Doesn't change the population of a city or the country, but that adds one more household and that adds one more unit of demand.

21:39That could happen when a young person moves out of their parents' house or if two people split up and they decide to have two homes. So that's what we're talking about. And that's just an ongoing question I have, particularly as it relates to rents. So we actually we got a twofer on that one. We did prediction four and five at the same time. So what is prediction six? Prediction six is about policy. So housing affordability has become the paramount issue in policy. I think what we saw in the last election cycle is that it is the decisive issue, actually, or it will be in a lot of elections. And I think both parties know this, and candidates who are running for office also know this.

22:25So our prediction is that there will be a lot of serious proposals brought forward. It is, as is always the case in policy, some of them will be useful and some of them may not be that useful at the end of the day. We know that in order to really address housing affordability, you have to build more supply. But that is really, really hard to do because it's controlled by thousands of local jurisdictions. A good portion of the population has a vested interest in not allowing there to be more supply. So this is a very tricky problem to solve. And it's going to require really innovative policy solutions because, quite frankly, no one's really solved this problem.

23:07And it's been a problem for a long time. We know that the country is short many millions of housing units. But across the country, when you're looking at election results, you can see that this really is the main issue that's on the minds of voters. Well, I hope you're right. I do hope that we start to see some sensible policies here. My, you know, I was getting interviewed the other day and I was saying I feel like the the real hard thing here is that policies that actually help are not really well aligned with the election cycles in the United States because adding supply takes years, right?

23:42Like we could start now and it could take three years. It could take five years, take seven years and politicians, both sides of the aisle, they're trying to get reelected every two years or every four years. And so oftentimes I think what frustrates me is the solutions that get the most traction are the short term ones that might maybe make a dent in the short run, but like aren't really kind of going after the supply issue. I'm curious if you have any thoughts on like what some good policies or any examples of policies that could actually help here, because I totally agree. This is a huge problem for the country.

24:14It needs to be fixed. To me, I think there are local jurisdictions that have made some progress by making it easier, taking away red tape, maybe introducing ADUs or manufactured housing, all these different types of innovation to try to add some supply. It's not a silver bullet and it's not enough supply, although we shouldn't discount that there is some progress being made. I think in order for there to be a consolidated federal push, the difficulty is that the federal government is involved in the housing market, mostly on the financing side. It's not on the supply side, right? But the federal government has a lot of sticks and carrots that it can use when talking to local jurisdictions.