The NEXT 60 Days Will Have A HUGE Impact On The 2026 Housing Market

By Josh Lewis, CMC & Jeb Smith, Huntington Beach Realtor | The Educated Homebuyer Podcast, Episode 208

Every year, the housing market goes quiet in December. Sellers wait. Buyers wait. Analysts publish year-end recaps filled with predictions about what comes next. And then January arrives, and everybody goes back to watching and waiting some more.

But here is what most buyers and sellers miss: the first quarter of the year is not just a warm-up. It is the diagnostic period that sets the trajectory for the entire spring and summer buying season. The data that accumulates between now and late March will answer the questions that matter most: Is this shaping up to be a buyer's market, a seller's market, or a stalled market that just grinds sideways?

If you are trying to time a purchase, decide whether to list your home, or simply figure out what is actually happening beneath the noise of real estate headlines, there are three specific data points that will tell you everything you need to know. Understanding them now, before the spring market opens, gives you a legitimate strategic advantage.

Why Q1 Sets the Market's Direction for the Full Year

The first quarter matters for a simple reason: it is when the housing market resets from its seasonal low and begins to reveal the underlying supply and demand dynamics that will define the months ahead. Historically, March is the single largest month for new inventory coming to market. That surge of listings, combined with the reentry of buyers who paused their searches in the fall, creates the clearest picture of where pricing power actually sits.

Consider what the last several years looked like entering Q1. In 2022, the market was shifting violently from historically low rates toward what then felt like shockingly high ones. In 2023, 2024, and 2025, buyers and sellers experienced rolling volatility driven by rate uncertainty. Each year, the spring season was foreshadowed by what happened in January through March. This year is no different, except for one important distinction: mortgage rates are sitting roughly one full percentage point below where they were at this same time last year. That single variable changes the calculus for a meaningful number of buyers who have been sitting on the sidelines.

At the same time, a respected data analyst like Bill McBride, who runs a rigorously data-driven housing research platform, has noted two seemingly contradictory signals simultaneously: median home prices are up only a fraction of a percent year over year, suggesting the market could see modest national price declines in 2026, while inventory dropped sharply in December and failed to see the January increase many were expecting. Both things are true at once, which is exactly why the next 60 days of incoming data are so important.

Ignoring the Headlines: What the Data Actually Shows

Before getting into the three metrics worth watching, it helps to address the kind of framing that tends to distort buyer and seller decision-making. A major real estate platform recently published data showing that 62 percent of homes are currently selling below list price, framing this as a dramatic market shift toward buyers. The implication was that buyers could now negotiate aggressively across the board.

The problem is that 62 to 64 percent of homes selling below list price is completely consistent with pre-COVID norms. Analysts who broke down the underlying data confirmed that this is not some alarming new trend. It is simply the return of normal market behavior after an extended period where sellers could demand almost anything and buyers had very little leverage. The era of "every home sells above ask in days" is behind us in most markets. That is a meaningful shift, but it is not the same thing as a buyer's market.

What this illustrates is a broader challenge: real estate data is deeply local, and national headlines routinely misapply aggregate figures to individual markets. A buyer in Southern California, specifically in Huntington Beach or broader Orange County, is operating in a fundamentally different supply and demand environment than a buyer in Austin, Phoenix, or Florida. The metrics below are most useful when applied to your specific market with the guidance of an agent who understands the local data.

The Three-Metric Dashboard Every Buyer and Seller Should Be Tracking

Think of these three data points as a simple real-time scoreboard. Together they tell you which direction the market is leaning before the spring season makes everything much harder to read.

Metric One: Inventory Levels in Your Local Market

Inventory is the most structurally important variable in the housing market, and it is the one most likely to shift meaningfully in the next 60 days. More inventory tends to flow into the market each year as spring approaches, but the question is not whether that happens. The question is whether the level of new supply lands above, below, or right in line with recent historical norms.

Here in Orange County, California, current active inventory sits around 3,100 homes. To put that in context, the three-year average from 2017 to 2019, before the pandemic distorted the baseline, was closer to 5,000 homes during this same period of the year. That means the region is still running 30 to 40 percent below what would historically be considered a normal level of supply for this time of year. Buyers are not operating in a market overflowing with options. That structural undersupply is one reason prices in the area have remained resilient even as affordability has been pressured by elevated rates.

What to watch: Is inventory rising faster than it did at this point in 2023, 2024, or 2025? Is it rising in line? Or is it lagging? Rising faster than prior years with flat buyer demand points toward more negotiating leverage for buyers and softer pricing. Rising in line with demand points toward a balanced market. Lagging prior years while demand holds firm strengthens the seller's position and likely supports continued price stability.

Your real estate professional should be able to pull this data for your specific city or neighborhood. The national figures are interesting context, but local data is what actually informs your strategy.

Metric Two: Mortgage Rate Direction and the Fed's Role

Rates are the variable that moves fastest and captures the most attention. The challenge heading into early 2026 is that the near-term picture is genuinely uncertain, and the risks are not evenly distributed.

The Federal Reserve just completed three rate cuts in the prior year and is now in an evaluation period. The next Fed meeting with a meaningful probability of action is not until June. Fed members have been signaling a desire to remain patient, assess where inflation is trending, and avoid making hasty moves. That means rates are not getting a lift from Fed policy in the near term.

What has been unusual in recent weeks is that the 10-year Treasury yield has been rising, which should theoretically push mortgage rates higher. But rates have remained roughly flat because of what appears to be significant purchasing of mortgage-backed securities on the secondary market, which compresses the spread between the 10-year and the 30-year mortgage rate. That spread recently dropped to around 1.68, well below what most analysts anticipated at this stage of the year, and that compression is what has kept rates lower than the bond market alone would suggest.

The practical implication: if that spread compression persists or tightens further, mortgage rates could stay in their current range or even dip slightly. If the compression unwinds, rates edge up even without a move from the Fed. For the first half of 2026, the most likely scenario is sideways, but the risks are weighted more toward a modest increase than a meaningful decrease.

What to watch: Week-over-week rate changes create noise. What matters is whether rates stay in the range buyers and sellers have priced in, or whether they move meaningfully in either direction. A half-point drop would bring a significant number of sidelined buyers back into the market. A half-point increase could slow demand noticeably, particularly at the entry-level price points where affordability is already stretched.

Metric Three: Mortgage Application Volume Year Over Year

The Mortgage Bankers Association releases weekly mortgage application data, and while the week-over-week numbers are noisy, the year-over-year comparison is one of the clearest demand signals available. Current applications are running approximately 25 to 30 percent above this time last year. That sounds substantial, but the important context is that last year's levels were historically low. We are not approaching anything like the application volumes seen during the 2021 buying frenzy. We are recovering off a very depressed floor.

What this metric tells you in practical terms is how crowded the market is likely to be when you go to make an offer. If applications are running 25 to 30 percent above last year, the odds of encountering multiple offers on a well-priced property are meaningfully higher than they were 12 months ago. Not every market will reflect this, and not every price point will, but the trend is worth tracking weekly if you are actively shopping or planning to list.

Your real estate agent should also be watching days on market in your specific target area. That metric, while imperfect, tells you whether demand is outpacing supply locally. Falling days on market indicate buyers are moving quickly. Rising days on market signal that sellers are either overpricing or the pool of active buyers has thinned.

What Most Buyers Get Wrong About the 2026 Market

The dominant narrative being sold to buyers right now, depending on which headlines they are reading, is that this is either a buyer's market where deep discounts are available or an expensive locked-up market where nothing moves. Neither characterization is accurate for most of the country, and both are certainly inaccurate for Southern California.

What is actually happening is a gradual normalization away from the extreme seller's market of 2020 through 2022, without a full reversal into buyer's market territory. Sellers no longer have unchecked pricing power. Overpriced homes sit. Price reductions are common, but that is historically normal. At the same time, well-priced, well-maintained homes in desirable submarkets continue to move with urgency. The Northeast and parts of California remain competitive environments where buyers need to come prepared.

One pattern worth noting: there is currently a segment of overpriced listings in the market from sellers who have not adjusted their expectations to current conditions. These are effectively "make me move" prices, reflecting a willingness to sell only if someone meets an unrealistic number. Many of these sellers are sitting on extremely low mortgage rates, have no financial pressure to sell, and are simply testing the market. These listings inflate active inventory numbers without representing real supply that meets buyers at market value. Understanding this distinction prevents buyers from over-interpreting rising inventory as a broad signal that prices are falling.

What This Means If You Are Buying in Orange County or Huntington Beach

For buyers in the Southern California market, a few things are clear heading into the spring season. First, inventory remains below historical norms despite modest recent increases. The pool of homes available at any given moment is smaller than it would have been in a pre-COVID year, which means competition for well-priced properties remains real. Second, rates being roughly one percent below last year meaningfully improves monthly affordability, which is drawing more buyers back to active searching. Third, sellers in the area have largely held on pricing, supported by the same rate lock-in dynamic that has constrained supply nationally.

The practical upshot for buyers is that waiting for a dramatic price correction or a significant rate drop before acting is a strategy with meaningful opportunity cost. Every month that passes is a month of equity building forgone, a month of rent paid to someone else, and a month of mortgage interest potentially deductible. The buyers who do best in this environment are the ones who define their parameters clearly, get pre-approved for a real number, and are prepared to move decisively when the right property appears.

For sellers, the question is not whether the market supports your price. The question is whether your home supports your price. Motivated, well-prepared buyers are in the market. What they are not willing to do is overpay for a property that does not justify a premium. An experienced local agent will tell you the truth about how your home compares to what is actually trading.

Three Scenarios and What Each One Means for Your Strategy

As the first quarter unfolds, the data will point toward one of three market conditions for the spring season:

A buyer-favored environment would be characterized by inventory rising faster than demand, rates holding flat or edging higher, and days on market expanding. In this scenario, buyers gain more negotiating power, seller concessions become more available, and patience is rewarded. This scenario is possible but would likely require an unexpected rise in rates that dampens demand.

A seller-favored environment would emerge if inventory increases are absorbed by strong buyer demand, particularly if rates dip further and pull more buyers into the market. In this scenario, multiple-offer situations become more common, and well-priced homes in desirable areas move quickly. Price appreciation would likely remain modest, but buyers would have less leverage.

A neutral, sideways market is the most probable scenario based on current indicators. Inventory increases incrementally, rates remain roughly stable, and buyers and sellers are both waiting to see who blinks first. This is the environment most buyers and sellers will actually be navigating this spring. It rewards preparation, accurate pricing, and clear-eyed strategy over speculation or market timing.

The Strategic Takeaway for Research-Driven Buyers

The 2026 housing market is not going to hand anyone a layup. It will reward the buyers who have done the work to understand their numbers, their market, and their timeline. It will reward sellers who price honestly and prepare their homes thoughtfully. And it will frustrate anyone who is waiting for a signal that the market has clearly broken in one direction or another, because markets in transition rarely give that signal cleanly before the opportunity has passed.

The next 60 days are not just background noise while you wait for the "real" buying season to start. They are the buying season's foundation. The inventory trends being established right now, the rate environment taking shape, and the demand levels accumulating week over week will all directly shape the competitive landscape you walk into when you make an offer this spring.

Watch the data. Work with professionals who can translate local data into actionable guidance. And build your strategy around your goals and your financial reality, not around headlines designed to maximize clicks.