Is the Housing Market Finally Improving? What California Buyers and Sellers Need to Know in 2026

By Josh Lewis, Certified Mortgage Consultant & Jeb Smith, Huntington Beach Realtor | The Educated Homebuyer Podcast | Episode 212

For the past three years, the conversation around housing affordability has been dominated by frustration. Rates climbed sharply from historic lows. Home prices didn't follow them down. Buyers who expected a correction kept waiting, and the window to act felt like it was perpetually closing. That narrative is beginning to shift.

Zillow recently released two notable reports: one projecting modest home price appreciation over the next 12 months, and another showing a meaningful improvement in buyer affordability. These aren't just headlines. When you layer in what's happening with wages, interest rates, and real-time inventory activity in markets like Orange County and Huntington Beach, a clearer picture emerges. The market is not crashing. It is not surging. But it is improving. And for buyers who have been sitting on the sidelines, that distinction matters enormously.

What Zillow's Latest Data Actually Tells Us

Zillow is projecting that the average buyer in 2026 can afford approximately $30,000 more home than a buyer in the same financial position could afford a year ago. That is not a minor shift. It represents a genuine change in purchasing power, and it's being driven by three distinct forces working in buyers' favor simultaneously.

There are only three ways housing affordability improves: home prices come down, wages go up, or interest rates decline. Historically, we rarely see all three move in a buyer-friendly direction at the same time. Right now, we're seeing exactly that. Home prices have increased only 0.2 percent over the last 12 months, well below the historical average. Zillow forecasts an additional 0.9 percent appreciation over the next 12 months, meaning total price growth across a 24-month window would be roughly 1.1 percent. Meanwhile, wages have been growing at approximately 3.5 percent annually, meaning buyers are earning more while prices have held relatively flat. Add to that a meaningful drop in mortgage rates from their 2023 peak, and the math shifts substantially in a buyer's direction.

To be precise about language: affordability is not good in absolute terms. Especially in Southern California, where median home prices remain far above national averages, the financial commitment to own a home is significant. But "not good" and "improving" are not the same statement. The trajectory has changed, and that trajectory matters for anyone evaluating whether 2026 is the right time to move forward.

The Three-Year Case Against a Crash, and Why It Still Holds

Beginning in 2022 and continuing through 2024, the loudest voices in housing predicted a price crash. The argument made intuitive sense: affordability had deteriorated sharply, inventory was tight, and a generation of potential buyers was being priced out of the market. Prices had to come down, the theory went, or the whole system would break.

That crash never materialized, and it's worth understanding why. Home prices have more than one way to normalize. The dramatic 30 to 35 percent price drops seen during the 2008 housing crisis were driven by a specific set of conditions: a flood of distressed inventory, mass foreclosures, and loans that should never have been written in the first place. Those conditions do not exist in today's market. Homeowners are sitting on record levels of equity, loan quality is strong, and the structural inventory shortage that has kept prices elevated for years is still very much present.

Instead of crashing, prices have essentially moved sideways in many markets. In real terms, meaning adjusted for inflation, homes have actually become slightly more affordable over the last two years. Nominal prices have been flat while inflation has run around 5 percent cumulatively and wages have grown faster than home values. That is the correction. It just doesn't look the way most people expected.

Interest Rates in 2026: Where Things Stand and What It Means

Mortgage rates began 2026 just above 6 percent and have since dipped below that threshold, depending on the loan type and borrower profile. That represents the lowest rate environment buyers have seen in roughly three years. For buyers who were underwritten at a 6.5 or 7 percent rate when they first got pre-approved, the improvement in their purchasing power is real and quantifiable.

Logan Mohtashami, one of the more data-driven housing analysts currently operating, recently shifted his rate outlook in a more optimistic direction, suggesting there's a credible path to rates approaching 5.75 percent or even lower given current economic conditions. That does not mean buyers should wait and try to catch the bottom. Rate forecasting over short time horizons is notoriously imprecise, and the events of the past several years have demonstrated that geopolitical shocks can move rates quickly and unpredictably.

You Cannot Time the Rate Market

Three times over the past five years, major geopolitical events in the Middle East triggered sharp short-term spikes in mortgage rates. In each case, within roughly three weeks, rates returned to approximately where they had been before. The market processes these events, and the underlying fundamentals reassert themselves. The lesson is not that instability doesn't matter. The lesson is that waiting for a perfect rate environment is a strategy with a very poor track record.

If you buy today at 6.125 percent and rates fall meaningfully over the next 12 months, a no-cost or low-cost refinance captures that improvement. You don't lose the appreciation that accumulates during that window. You don't lose the equity built through principal paydown. The purchase captures the benefits of ownership; the refinance captures the rate improvement when it comes. Doing nothing while you wait for conditions to align perfectly is the riskiest strategy of all.

What the Market Actually Looks Like on the Ground in Orange County and Huntington Beach

National data and local market conditions are often two very different things. Zillow's latest heat map for Southern California shows much of the region in a near-zero appreciation forecast, which underestimates the activity happening in specific price points and property types right now.

Here is what a working knowledge of the Orange County and Huntington Beach markets looks like in early 2026. Move-in ready, well-priced properties in desirable locations are receiving multiple offers. Buyers are competing. Prices on those properties are holding firm and in some cases exceeding list. This is not the frantic overbidding environment of 2021, but it is not a buyer's market in any meaningful sense for turnkey inventory.

Properties that need work, including fixers and cosmetically dated homes, are sitting longer. Investors are present but selective, and they are offering prices that reflect the renovation cost, not the aspirational end value. Sellers of those properties are experiencing a different market entirely.

The practical implication for buyers is important. If you are planning to purchase a turnkey home using most or all of your available cash reserves, understand that you are competing for the same properties that the most qualified buyers in the market are targeting. Sellers have leverage in that segment. If you have the flexibility to consider a property that needs updating or work, your leverage increases substantially. Even in competitive markets, the middle of the bell curve attracts the most competition. The further from the average a property sits, the more negotiating room buyers tend to have.

What Most Buyers Get Wrong About Market Timing

The emotional pull of market timing is understandable. Nobody wants to buy at the top, and in a market that has felt persistently expensive, the instinct to wait for something to change is deeply human. But the data consistently shows that the cost of waiting is usually higher than the cost of buying at an imperfect moment.

Consider the buyer who has been looking for the last year and is now eyeing a property listed at $1,699,000. They tell their realtor they're willing to go to $1,700,000, and if it goes above that, they're out. Their monthly payment at $1,700,000 is approximately $8,000. The increment they are unwilling to exceed represents roughly $60 to $90 per month. And if they don't get this property, they are back to searching, writing offers, chasing properties, and absorbing the opportunity cost of time while prices in their target range continue to drift upward.

That is not to say buyers should abandon discipline. Having a genuine limit and honoring it is a sound strategy. What is not sound is conflating emotional resistance to a number with a financially defensible position. If the question is whether to spend $25,000 more on a home or spend the next six months continuing to search, the honest answer requires quantifying both options in real terms, not just the one that feels more controllable.

The Importance of Knowing Your Number and Holding It Strategically

There is a meaningful difference between a hard financial limit and an emotional limit dressed up as a financial one. A hard financial limit is defined by your debt-to-income ratio, your reserves after closing, your lender's underwriting parameters, and your realistic monthly budget. Those limits are real and should be honored unconditionally.

An emotional limit is when you feel like a certain price is too much, even when the math says you can manage it. In a market where inventory is limited and competition is real, allowing emotional limits to function as financial ones is one of the more common and costly mistakes buyers make. Work with your lender to understand exactly what various price increments mean in monthly payment terms. Convert every dollar figure into a payment. Then decide what you're actually comfortable with rather than what feels psychologically acceptable in the abstract.

A Note on Market Dispersion: National Headlines Do Not Apply Uniformly

When Zillow publishes a national affordability forecast or a home price projection, that number represents an average across hundreds of distinct markets. The experience in Huntington Beach, Anaheim, or Irvine is going to differ significantly from the experience in Austin, Denver, or parts of Florida, where pandemic-era appreciation far outpaced long-term fundamentals and where some price correction is now visible in the data.

Zillow's own market-level forecasts reflect this. Nationally, they project modest appreciation. But within that average, some markets are forecast to appreciate 4 to 5 percent while others may see prices decline 3 to 4 percent. Southern California, with its persistent structural shortage of housing, remains a fundamentally different market than the sunbelt metros that overbuilt or that attracted population growth well beyond what local economics could sustain.

For buyers and sellers in Orange County and the broader Southern California coastal market, the relevant data is local data. National narratives around housing, whether optimistic or pessimistic, are a starting point for a conversation, not a substitute for understanding what is happening in the specific zip codes, price ranges, and property types that matter to your situation.

What This Means If You Are a Seller

Sellers in today's market are not operating in either the extreme leverage position of 2021 or the weakened position of some other markets around the country. The current Southern California market is relatively balanced, with buyers having more options and more negotiating room than they did two or three years ago, but well-priced, well-presented properties still moving with competitive interest.

Pricing strategy is the single most consequential decision a seller makes. Properties entering the market at or near fair value based on recent comparable sales attract qualified buyers who are genuinely motivated. Properties that lead with aspirational pricing tend to accumulate days on market, which in turn signals to buyers that something may be wrong, inviting lower offers and more aggressive negotiations when the seller eventually adjusts.

The buyers active in today's market are more informed and more analytical than in previous cycles. They are working with agents who help them evaluate whether a price reflects the actual market or represents a seller test. Buyers are patient in a way they were not in 2021, and that patience gives them leverage when a property lingers. Price it right from the start, and you capture the energy of a new listing without sacrificing equity.

The Long View: Why Ownership Still Makes Sense for the Right Buyer

At its core, the decision to buy a home is not a market timing decision. It is a life decision shaped by financial readiness, personal circumstances, and a clear understanding of what ownership actually delivers over time. The financial case for homeownership is not built on buying at the perfect moment. It is built on the consistent accumulation of equity through principal paydown, the protection from rent increases that a fixed mortgage provides, and the long-term appreciation that well-located real estate in supply-constrained markets tends to deliver across economic cycles.

For buyers in Orange County and Huntington Beach who are financially ready, who have stable income and adequate reserves, and who plan to stay in a home long enough to absorb transaction costs and short-term market fluctuations, the current environment represents one of the better buying opportunities of the past several years. Rates are down significantly from their peak. Competition is more measured than it was at the height of the pandemic frenzy. Sellers are realistic in a way they weren't when every property drew ten offers before the first weekend was over.

The buyers who will look back at 2026 with satisfaction are the ones who focused on their own financial readiness, understood their specific market, and made a decision grounded in their long-term goals rather than a bet on where rates might be in three months. That is not a complicated framework. But it requires the discipline to ignore the noise and the guidance to apply it correctly to your situation.