The housing market is starting 2026 by walking a tightrope. While financing conditions are stabilizing, buyer demand is softening. If you are looking to buy or sell this month, the landscape is shifting in important ways—from mortgage rates to rental prices.
Here is the breakdown of the key economic indicators shaping the housing market right now.
1. Mortgage Rates: The "Wait-and-See" Game
After three cuts last year, the Federal Reserve has hit the pause button, holding the federal funds rate steady at 3.50%–3.75%.
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Where are rates now? The average 30-year fixed rate is drifting sideways in the low-to-mid 6% range.
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What to expect: Rates are relatively stable but sensitive. With President Trump nominating Kevin Warsh to succeed Jerome Powell as Fed Chair, markets are watching closely for future shifts in strategy. For now, don't expect massive drops—volatility is likely to continue.
2. Buyer Confidence is Shaking
Consumer confidence has dropped to its lowest level since 2014. Why? High costs and uncertainty about jobs are making households cautious.
This lack of optimism is directly impacting the housing market. When people worry about their income, they hesitate to take on big mortgages. This is leading to slower buying activity and more "deliberate" decision-making, especially in high-cost states like California.
3. The "Flaking" Factor: Cancellations Hit a Decade High
Perhaps the biggest red flag for sellers is the spike in deal terminations. In December, 16.3% of all home contracts were cancelled—the highest rate in nearly ten years.
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Why is this happening? Buyers have leverage. With sellers outnumbering buyers by roughly 47%, purchasers are being picky. If the inspection isn't perfect or the math doesn't make sense, they are walking away.
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The Trend: While California markets (like San Francisco and San Jose) are seeing fewer cancellations due to tight inventory, the national trend points toward softer sales and potentially moderating prices in Q1 2026.
4. Jobs & Rentals: A Mixed Bag
The labor market is cooling off. National job growth has slowed significantly, and California has actually seen a decline in construction jobs. This lack of momentum limits how fast the housing market can grow.
On the flip side, renters are finally catching a break.
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National Rents: Down to a four-year low.
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Vacancy Rates: Up to a record 7.3%.
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The Exception: While the South and Mountain West see price drops, coastal hubs like San Jose are still seeing modest rent gains.
The Bottom Line
We are entering a buyer-friendly window, but one defined by caution.
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For Buyers: You have more negotiating power than you’ve had in years. Don't be afraid to ask for concessions, but keep an eye on interest rate volatility.
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For Sellers: Patience is key. With cancellations rising, a signed contract isn't a "done deal" until the keys are handed over. Pricing your home correctly from day one is more critical than ever.
Would you like more insights on how this trend could impact your real estate decisions? Give us a call or if you'd like to schedule a meeting, email us at [email protected]
