At the end of last year I really thought that if the housing market were going to crack, it’d happen in 2026. In states like Florida, Texas, and Arizona, there were 20 or 30 percent more homes for sale than at the same point before the pandemic. And that number was still growing.
This is a big reason why homebuilders have been struggling. Interest rates had been high ever since the Fed raised rates a lot in 2022, but for awhile builders made it work because there just weren’t that many homes for sale, and they had tools like interest rate buydowns to help people with affordability.
That dynamic had started to change in 2024 but especially last year. Sellers slowly lost patience, and the number of homes for sale began piling up in the South and much of the West. Prices began falling. It started dawning on people that we weren’t going to see 5% mortgage rates any time soon. Nobody wants to buy an asset that’s falling in price, and that’s what housing became. For most people, renting was cheaper than buying, with money left over to invest in stocks.
Here’s the concern I had coming into the year. Inventory would keep rising. Sellers would get more desperate. Prices would fall faster. Buyers would get even more skittish. Homebuilders would cut production and jobs. It’s the kind of thing that’s led to recessions in the past.
But in January there were signs of a shift. Inventory stabilized in Florida. To be fair, there were still plenty of homes for sale in the state. Some of what happened was probably frustrated sellers taking their homes off the market. But still, it meant maybe things weren’t going to keep getting worse.
In February the housing market got some help from interest rates. It’s been awhile, but that’s when everyone was freaking out about the impact of AI on the labor market. Software stocks got destroyed. People were talking about office jobs like we were in that moment in February 2020 right before COVID shut down the US. All that worry helped push 30-year mortgage rates to 6%.
But then the conflict in Iran broke out. The Strait of Hormuz was closed. Oil prices and interest rates spiked. Housing stocks got crushed. By the end of March, mortgage rates were back over 6.5%. Consumer confidence plunged. If there were ever a time when the housing market was going to crumble, it was here.
But it didn’t. Mike Simonsen, the chief economist at Compass, showed in mid-April that the war hadn’t caused a spike in inventory. In fact, inventory was starting to shrink compared to a year ago. Pending home sales had dipped a bit but hadn’t plunged. The war had caused the housing market to stagger but it was still standing.
May and June showed signs of improvement even without help from mortgage rates. Compass and Redfin said in their weekly market reports that pending home sales were up. Several homebuilders noted in their earnings reports that their use of incentives was down and their profit margins were up. PulteGroup, the third-largest homebuilder in America, said that their orders in Florida were up 19% from a year ago.
And then there’s San Francisco. Just like the AI boom transforming the city’s economy, home prices and rents are rising rapidly. Through June, home prices in the city are up 9.2% vs last year according to Redfin. According to Apartment List, rents in the city are up a whopping 23%. And the leading AI companies – OpenAI and Anthropic – haven’t even gone public yet. When they do, their thousands of employees and investors will have access to tens if not hundreds of billions of dollars of wealth, and some of that will no doubt find its way into real estate.
At the high end of the housing market, that stock market wealth is what to watch. In much of the country – places like Phoenix and Dallas and Atlanta – home prices have been flat for 4 years. But over that time the S&P 500 is up 80% and the Nasdaq has doubled.
The job market is also now in a better place. The unemployment rate has been falling all year. Jobless claims are down. Job postings are up. Construction and manufacturing jobs are increasing again. So are white-collar jobs, which is a notable change from last year.
What hasn’t picked up is worker confidence. I’ll be honest, in January I was worried about some of the AI doom scenarios for workers. Hiring had been weak for two years. Unemployment was up. The release of Claude Code felt like a real moment in the discourse. But the way things have evolved since then make me feel better about the outlook for workers. AI keeps getting better but the job market data has clearly improved. Consumers remain unhappy about affordability and high interest rates but they keep spending. Maybe AI will come for all our jobs one day, but it won’t happen in 2026.
Here’s the state of play for housing heading into the latter part of 2026. The two weakest states coming into the year – Florida and Texas – have signs of life. In Florida, inventory is down and sales are up. In Texas, inventory is stable and Austin is quickly getting “less bad.”
Nationally, inventory levels are stable. There are still fewer homes for sale now than there were prior to the pandemic. Most of the North and Midwest never even had a slump and still don’t have enough homes. The rise in mortgage rates is holding back improvement but generally not making conditions worse.
Both homebuilders and apartment managers showed more optimism this quarter than they have in years. Builders have reason to believe incentives have finally peaked and profit margins have bottomed. For apartments, occupancy is up and there’s no glut of supply coming any time soon.
And at the high end of the market, stock market wealth means it doesn’t matter where mortgage rates are.
But pockets of weakness remain. Cities like Seattle are still struggling. The entry-level market remains tough. Some metros and submarkets have a glut of inventory. Affordability obviously remains challenging for people who aren’t already rich.
But the housing recession that began in early 2022 is over.
I went back and looked at other lengthy housing recessions. We had one from 1979 to 1982 when the Fed nuked the economy with tight money – four years. We had another from 1988 to 1991 coinciding with the Savings and Loan crisis and the first Gulf War – also four years. The Great Recession from a housing perspective lasted 6 years – 2006 through 2011.
And then we have today. This housing recession began in the first quarter of 2022, which is now 4.5 years ago – almost a half decade. Existing home sales have been stuck around Great Recession levels for 4 years. Homebuilders have pulled back. Apartment development has slumped. The number of homes for sale surged in the places that boomed the most during the pandemic housing frenzy.
But from here the picture looks different. Inventory in Florida and Texas is now falling. Unemployment is down. Stock market wealth is at a record high. The worst for homebuilders seems behind us. Apartment vacancy rates are beginning to fall. Several publicly-traded homebuilders have been bought out just in the past few months.
These are the signs of an industry in recovery, even if the vibes feel bad.
In the weeks and months to come, I’ll be talking more about where I think things are going with these podcast essays. I’ll also be posting charts and analysis on substack. I hope you’ll subscribe and follow along. Thanks for reading.