Roughly 43% of my net worth is in real estate, my favorite asset class for the average person to build long term wealth.

Real estate was my primary reason for being able to generate enough passive investment income to leave work in 2012. It has also been responsible for two of my largest capital gains to date. When it comes to paying for college for my children or providing affordable housing options for them in the future, real estate remains a core part of the plan. Finally, I believe real estate is one of the best ways to actually enjoy your wealth in a responsible and tangible manner.

In short, I love real estate.

However, at 48 years old, I also find that being a rental property owner is increasingly becoming a pain point. My tolerance for dealing with tenant issues, maintenance surprises, regulatory changes, and general property management friction has declined. As a result, I decided to right size my real estate exposure by selling one property in the first quarter of 2025.

Today, I am left with four rental properties plus a collection of private real estate investments, which feels far more manageable given my stage of life and priorities.

Now that you understand my background as a property investor since 2003, here are my real estate forecasts for 2026. And of course, a quick disclaimer that all risk assets carry risk and there are no guaranteed returns. Always do your own due diligence, just as I am doing now.

Real Estate Prices Should Do Well In 2026

Since 2022, real estate prices across the country have either slowed, flat lined, or declined modestly depending on location and asset type. That adjustment period has been healthy and overdue after the enormous pandemic era surge.

However, I believe there are several compelling reasons why nationwide real estate prices should resume upward momentum in 2026. There are three fundamental reasons and one important sentiment driven factor.

1) Capital Rotation From Stocks To Real Estate

The valuation gap between stocks and real estate has rarely been wider. Equity markets have delivered enormous gains since the beginning of 2023, while real estate nationwide has largely gone sideways. When such a divergence persists long enough, capital tends to rotate.

S&P 500 investors who have enjoyed roughly 80% gains over a three year stretch from 2023 through 2025 are increasingly aware of downside risk. The last thing most long term stock investors want to experience is a repeat of 2022, when a sharp drawdown erased years of paper gains in a matter of months. Even if stocks continue to grind higher, prudent investors naturally rebalance.

This does not mean money will flee equities en masse. It simply means incremental capital from profits, bonuses, and ongoing cash flow is more likely to flow into hard assets that still trade at reasonable valuations relative to income. Residential real estate fits that description well in many markets.

When enough investors decide to shift even a small portion of their portfolios into real estate, prices do not need to surge dramatically to move higher. Marginal demand sets prices at the margin, and right now marginal capital looks increasingly inclined to diversify away from pure financial assets.

2) Declining Mortgage Rates Thanks To Narrowing Spreads

Although the 10 year Treasury yield remains stubbornly elevated above 4%, the average 30 year fixed mortgage rate has declined meaningfully. As of early 2026, rates are hovering around 5.99% compared to roughly 7.1% at the same time last year. That improvement matters far more to monthly affordability than many people realize.

The reason mortgage rates have fallen despite relatively high Treasury yields is that spreads have narrowed. One contributing factor is the anticipated purchase of roughly $200 billion of mortgage backed securities by Fannie Mae and Freddie Mac. When spreads compress, borrowers benefit.

Many well qualified borrowers (you FS readers) can already secure rates roughly half a percentage point below the national average. That puts realistic mortgage rates closer to 5.5% for a large segment of buyers. If the Federal Reserve cuts policy rates another two times in 2026, bringing the fed funds rate closer to 3.0% to 3.25%, there should be at least some additional downward pressure on longer term rates as well.

The Trump administration also appears highly focused on housing affordability in 2026. Proposed measures include increased support for mortgage backed securities, public pressure on the Federal Reserve, exploration of longer mortgage terms such as 50 year loans, and attempts to limit institutional ownership of single family homes.

Whether these initiatives succeed or not, the policy bias clearly leans toward supporting housing demand.

3) Increased Affordability Due To A Booming Stock Market

One of the most overlooked drivers of housing affordability is stock market performance. The average S&P 500 index fund investor earned approximately 17% in 2025, 23% in 2024, and 25% in 2023. That kind of wealth creation dramatically changes what households can afford, especially when only a 20% down payment is required.

Despite constant headlines about housing being unaffordable, many dual income households with meaningful equity exposure are in far better financial shape today than they were three years ago. Compare your investment account balances at the start of 2023 with where they stand today. Then compare home prices in your neighborhood over the same period. In many cases, portfolios have grown faster than home values.

The combination of rising stock portfolios and gradually declining mortgage rates creates a powerful tailwind for housing prices. If I were not already at my personal limit for how many properties I want to manage, I would be actively looking to buy another property before the spring buying season heats up. That said, my family found our ideal home to raise a family at the end of 2023. I have no desire to move anytime soon.

An Example Of How Rising Stocks Improve Housing Affordability

To make this concept concrete, consider a simplified example using one of my own accounts. Below is a three year snapshot of my Solo 401(k), which I have funded with various side hustle and consulting income since 2013. The account is almost entirely invested in index funds and stocks.

At the beginning of 2023, the account balance was approximately $213,000. Today, it sits around $505,000, representing a gain of about 105%. What is notable is that I only contributed roughly $30,000 over those three years because I was too busy with fatherhood. 100% of the $30,000 came from my four-month stint as a part-time consultant for a fintech startup from Nov 2023 through March 2024.

Now imagine this was a taxable brokerage account instead of a retirement account, and I was a 33 year old professional earning $110,000 per year in 2023. My wife earns $60,000 per year as a public school teacher, bringing household income to $170,000. Back in 2023, buying a $600,000 home would have felt like a stretch, even though lenders would likely approve the loan.

If I put down $120,000 on a $600,000 home in 2023, that would leave me with roughly $93,000 in liquid investments. That buffer feels adequate but not particularly comfortable. Instead of buying, I choose to rent modestly and invest aggressively in stocks.

Fast forward three years. That same home is now worth $800,000 or less, which feels reasonable given inflation and income growth. If I put down $160,000 today, I am left with approximately $353,000 in liquid investments. That difference fundamentally changes my sense of financial security.

Time To Look For An Even Nicer Home

With that much cushion, I might rationally consider homes priced between $1 million and $1.3 million. Household income is now around $185,000, up $15,000. Even with a $260,000 down payment on a $1.3 million home, there would still be over $150,000 left to invest in stocks.

Of course, after rereading my own post on income and net worth guidelines for buying a home, I would probably cap my purchase price closer to $1 million. Even so, that represents a substantially nicer home than what I could comfortably consider in 2023, all thanks to equity market gains.

4) More Used To External Shocks Disrupting Housing Demand

One of the biggest factors that derailed the typically strong spring housing season in 2025 was policy driven uncertainty. Beginning in mid February 2025, tariff announcements from the Trump administration rattled financial markets. Stocks sold off sharply through early April, culminating in what was dubbed Liberation Day.

With the stock market down nearly 18% in less than two months, buyers understandably pulled back. When portfolios shrink quickly, confidence evaporates, and housing transactions stall. This was not a reflection of housing fundamentals but rather a response to uncertainty.

In 2026, markets appear more accustomed to the administration’s policy style. While surprises are always possible, the shock factor has diminished. Even geopolitical events such as the surprise capture of Venezuela’s Maduro failed to derail the ongoing stock market rally. This suggests sentiment is more resilient.

Buyers who delayed purchases in 2025 may re-enter the market in 2026 with greater confidence. Their stock portfolios are larger, employment remains relatively stable, and there is more clarity around the administration’s economic priorities, particularly its desire to support housing.

The National Real Estate Picture

According to Zillow, national home values are forecast to rise approximately 1.2% in 2026 after remaining roughly flat in 2025. Zillow cites gradually improving affordability and steady buyer demand as key drivers.

Redfin is similarly conservative, forecasting about 1% price growth in 2026. Redfin points to faster income growth, lower mortgage rates, and a more predictable policy environment.

Based on these forecasts, I believe both firms are underestimating the upside. After three years of below average transaction volume, there is meaningful pent up demand. Nationally, I expect home prices to rise closer to their long term average of 3% to 4%, with wide variation by region.

Why I Am Bullish On San Francisco Real Estate

Given that I own property in San Francisco, this market naturally matters the most to me. I am also fully aware of my bias. That said, I genuinely believe San Francisco home prices will rise at least another 5% in 2026 after a strong 2025.

The technology sector continues to mint wealth at a rapid pace. While the S&P 500 had a strong year in 2025, the tech heavy NASDAQ performed even better. Artificial intelligence has accelerated wealth creation in ways that are clearly visible on the ground.

I see it in my public stock holdings, my private venture investments, and in my experience as a landlord. Google stock rose roughly 50% in 2025, and there are about 36,000 Google employees in the Bay Area alone. I play pickleball, tennis, and poker with some of them. Several parents at my children’s school work at Google. They are clearly wealthier and increasingly interested in upgrading their housing.

My Fundrise venture portfolio rose 43.5% in 2025, with exposure to companies such as OpenAI, Databricks, and Anduril. Thousands of employees at these firms are also seeing significant wealth creation, much of it concentrated in San Francisco.

On the rental side, I experienced tenant turnover twice in 2025. Each time, demand was strong. I estimate rents rose between 7% and 10% year over year. Historically, my five bedroom, four bathroom rental attracted families. The most recent tenant, however, is a couple, one of whom works in artificial intelligence. They wanted two home offices and a home gym. Those preferences reflect the purchasing power being created by the AI boom.

Real Estate As Enjoyment And Semi Passive Income

In conclusion, I am more bullish on real estate than the average forecaster heading into 2026. The decoupling between stocks and real estate over the past three years has gone on long enough.

I expect a gradual reversion as real estate catches up and stocks slow down. There is also a realistic scenario where stocks continue to inch higher while real estate accelerates, creating a favorable environment for both asset classes.

What I value most about real estate is not mark to market gains (or losses) but stability and income. Property does not disappear overnight. It generates semi-passive cash flow that supports our household and allows my wife and me to remain dual unemployed parents.

While real estate may not have been as exciting as stocks or venture capital over the past three years, it continues to deliver the most practical value in our daily lives.

Readers, what are your nationwide housing forecasts and your local real estate outlooks for 2026. Are you bullish or bearish, and why?

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To increase your chances of achieving financial independence, join 60,000+ readers and subscribe to my free Financial Samurai newsletter here. Financial Samurai began in 2009 and is a leading independently-owned personal finance site today. Everything is written based off firsthand experience.