Real Estate “Reset” in 2026? Redfin Thinks So; Here’s the Logic

In an article published this month, titled “Welcome to The Great Housing Reset,” Chen Zhao and Daryl Fairweather of Redfin write, “Next year will mark the beginning of a long, slow recovery for the housing market. The Great Housing Reset will take shape in 2026.”

Significantly, Redfin predicts that incomes will rise faster than home prices “for a prolonged period for the first time since the Great Recession era.” Well, that’s different. In 2025, home prices are so high (per Zillow®) that the interest on a 30-year fixed-rate mortgage would have to be 4.43% to make the median-priced U.S. home affordable for the median-income buyer who puts 20% down. And we know that’s not happening again any time soon…

Perhaps the “housing reset” talk is mostly PR. Lawrence Yun, chief economist for the National Association of REALTORS® (NAR), expects a 4% market value increase for the typical U.S. home in 2026. That’s 1% higher than the rise in 2025. Basically, NAR’s position is that the 2025 housing market was dreary but the conditions for a meaningful recovery could come together in 2026.  

Redfin Isn’t Alone in Talking Up 2026

Zillow predicts a better market, too, during 2026. And the National Association of REALTORS® (NAR) predicts a 14% increase in U.S. home sales for 2026, following 2025’s long pause. That 14% is worth noticing.

NAR’s chief economist notes that more mortgage applicants are already showing up. The association predicts a drop in mortgage rates, down to an average of 6% in 2026. If so, that’s a significant dip down from the 2025 average of 6.7%. Six percent isn’t peanuts, though, when the typical home costs half a million dollars.

Redfin sees 30-year mortgage rates staying a bit higher: above 6% for almost all of 2026, for an average of 6.3% throughout the year.

Redfin adds a caveat, too. Rates are unlikely to dip enough to make homebuying affordable in the year ahead for Gen Z. Many potential first-time buyers, says Redfin, will remain locked out.

NAR agrees. The agents’ group recently published its 2025 Profile of Home Buyers and Sellers. The publication shows first-time home buyers now at an all-time low. Baby boomers continue to dominate housing, says NAR in its REALTOR® Magazine. These older adults have cash or a good deal of home equity built up.

Redfin’s Crystal Ball Is on a Roll

Redfin also published a few more predictions. Here’s a sampling of what you can expect:

• A strong 2026 home buying season.

• Sales of existing homes in 2026 beating 2025 by 3%.

• Rents as much as 3% higher by late 2026, following inflation. Here, Redfin acknowledges that many people are having to rent because they can’t afford mortgages. And on that note…

• Households encompassing more adult children living with parents, and parents moving in with their kids. A rise in the buddy-system approach, with friends acquiring deeds as tenants in common.

• Young adults moving to the Midwest and Great Lakes regions, seeking relative affordability. In these areas, according to Zillow, a median-income household can afford the typical home. 

• Smaller cities attracting grads to work in blue-collar fields, as AI replaces certain white-collar employment.

• Slow housing markets in Texas and along South Florida’s coasts. A key factor will be insurance costs, following climate-heightened storm activity.

This tracks with the findings of Kara Ng, a Zillow economist. The Sun Belt is not keeping up with the broader market, says Ng. Seems Texas and Florida built more new development than they needed. Prices are highest in New York, Connecticut, and California’s Bay area, where new building is carefully zoned.

Redfin sees pushback coming from politicians, who have to answer to their voters in the coming election. Congress is working on two major affordability efforts at the moment. At the state and local levels, expect more zoning changes, and more flexible rules for adding accessory housing units.

Redfin also sees states looking to help their rural residents. Some states will follow in New York’s footsteps, Redfin predicts. New York is supporting the addition of manufactured and modular homes in its less populated areas.

More Starter Homes (But Who’s Buying Them?)

One of the more promising aspects of the current industry news refers to mortgage payments. The Mortgage Bankers Association keeps track of accounts in default. At this point, current borrowers are entering the new year in pretty good shape.

Now, what about people who’d like to acquire deeds, but have been left out of the market?

There are now 13% more listings posted for starter homes, compared against late 2024. And the prices on these modest homes only went up slightly since then, putting the average starter-home price tag at $260K.

Redfin calls the rising starter-home market “a double-edged sword.” Many more listings, low inflation…but most people who buy these homes are doing so because they can’t afford what they actually want. This means first-time buyers are attempting to compete with people who already own homes and have equity to spend.

Inventory growth across all price categories is mainly on account of listings staying on the market for longer periods. Not because a big volume of homes is suddenly available.   

In other words, people seeking deeds to modest homes are still coming up short. Is the federal government helping? The Consumer Federation of America says the federal government is about to make U.S. housing affordability worse. The group has formally objected to the U.S. Federal Housing Finance Agency (FHFA) over its proposed 2026-2028 Enterprise Housing Goals. With the government reducing its low-income buyer goals, some 177,000 households may lose access to mortgages backed by Fannie Mae and Freddie Mac.

FHFA also seeks to combine two separate buyer goals — “Low-Income” and “Minority” — into one. This will decrease mortgage access in minority communities, and widen the racial homeownership gap.

“This rule is a rather blatant example of how this Administration wants to limit access to the American Dream of homeownership,” as the Consumer Federation of America’s Sharon Cornelissen said. The government is “drawing sharp divisions between who they think deserves access to homeownership and who they see as undeserving buyers.”

The industry is watching. The Mortgage Point quoted Cornelissen in a recent article titled “Consumer and Civil-Rights Groups Warn FHFA’s 2026-2028 Goals Could Deepen Housing Crisis.”

The Great Housing Reset? Not everyone is popping the corks.