2026 Real Estate Market Update: What Investors Need to Know

he real estate market heading into 2026 is not defined by a single headline.

Prices haven’t collapsed across the board. Demand hasn’t disappeared. And yet many real estate investors are feeling pressure — tighter margins, slower exits, and fewer deals that “just work.”

To understand what’s really happening, it helps to look at both national market data and what investors are seeing deal-by-deal. When you connect those two perspectives, the current market starts to make a lot more sense.

Housing Activity Is Still Constrained — Even as Forecasts Improve

National housing data continues to show a market that is functioning, but slower than many investors were used to just a few years ago.

According to the National Association of Realtors, transaction volume remains well below peak levels, largely due to affordability challenges and the ongoing “rate lock-in” effect. Many homeowners are reluctant to sell because they don’t want to give up historically low mortgage rates.

NAR Chief Economist Lawrence Yun has noted that while conditions may improve in 2026 — including a projected increase in existing-home sales — the recovery is expected to be uneven by region and price point.

The takeaway:
Prices may stabilize or grow modestly, but transaction activity — especially for investors who rely on volume — remains tight.

Credit Tightening Is Quietly Changing Deal Math

One of the most important shifts in this cycle isn’t pricing — it’s lending behavior.

Ongoing commentary from the Federal Reserve shows tighter credit standards across both residential and commercial real estate. Banks are more selective. Underwriting is stricter. And leverage-driven strategies that once worked easily are harder to execute.

This shift is why many investors are experiencing:

Fewer qualified buyers
More seller openness to alternative terms
Greater difficulty refinancing out of deals

Deals that depended on appreciation or refinancing alone are now being stress-tested.

Multifamily and Commercial Pressure Is Real — But Uneven

Large commercial research firms like JLL and CBRE continue to report pressure in the multifamily sector.

Common themes include:

Values down from peak levels
Transaction volume significantly reduced
Refinancing challenges as loans mature

This does not resemble a 2008-style collapse, but it does confirm that cheap debt and easy exits are no longer guaranteed.

Why Foreclosures and Short Sales Are Showing Up Now

Why are we seeing foreclosure activity tied to loans that have been in default for years?

The answer lies in delayed resolution from COVID-era policies.

During the pandemic:

Foreclosures were paused or slowed by federal, state, and court-level restrictions
Many loans entered forbearance or modification pipelines
Some defaults were never fully resolved — they were simply delayed

Now that those restrictions have expired and court backlogs are clearing, servicers are being required to resolve long-standing non-performing loans.

Mortgage performance data from ICE Mortgage Technology (formerly Black Knight) shows this clearly: overall foreclosure levels remain historically low, but older defaults are now working their way through the system.

Where “Subject To” Deals Are Running Into Trouble

Another trend increasingly seen across markets — involves Subject To deals completed during the boom years.

From 2020–2022:

Many properties were purchased at or near retail prices
Appreciation covered thin margins
Investors planned to refinance or resell later

As conditions changed:

Prices flattened or declined in some markets
Insurance, taxes, and payments increased
Refinancing options disappeared

In many cases, both the original buyer and the investor who took over the loan are now dealing with properties that are underwater. And more and more lenders are choosing to exercise the Due on Sale Clause, and calling loans due.

When there is no equity and no viable exit, short sales often become the last attempt to resolve the deal before foreclosure — especially when the loan remains in the original borrower’s name.

This isn’t about bad intentions.
It’s about deals that only worked in one type of market.
We hope this does not result in yet more legislation restricting the industry.

Distress Is Rising — But It’s Targeted, Not Systemic

Housing analyst Rick Sharga has consistently emphasized an important distinction:

Today’s distress is:

Localized
Strategy-specific
Often tied to investor-owned properties

This is not a wave of owner-occupant collapse. It is a cleanup phase, where deals with little margin or limited flexibility are being tested.

Why Investors Are Expanding Their Toolkits

With rentals tighter, wholesaling more competitive, and exits harder to count on, many investors are reassessing how they participate in real estate.

That’s exactly why we’re taking a deep dive into strategy, structure, and market fit at our January 10 Master Class with Vena Jones-Cox. Whether what you’re doing isn’t working anymore—or you’re unsure where to start—this session focuses on how investors should be thinking in this market, not the last one.

From the note-investing side, Eddie Speed recently shared a year-end review showing how reduced conventional lending is expanding the role of seller financing and private paper. That doesn’t make notes “better” than rentals or flips—it makes them different, and often better suited to this phase of the cycle. That’s why notes and seller financing are on the agenda in January with Jeff Watson and NoteSchool at our January 13 meeting and January 17 half-day workshop.

We’re also seeing significant capital on the sidelines—money looking for yield without the operational headaches of direct ownership. For many, that’s shifting interest toward private lending rather than active investing, which is why our January 24 Master Class focuses on making sound private lending decisions.

At the same time, as foreclosure backlogs continue to work through the system and some Subject To loans are being called due, short sales are becoming an important problem-solving tool. That’s why we’re excited to welcome David Randolph for our February 10 meeting, followed by his in-depth master class on February 28.

Finally, as all of these market shifts impact portfolios as a whole, we’re inviting Eric Grannemann back in March to continue the conversation on evaluating portfolios and positioning assets for the best long-term outcomes.