Roughly 40% of my net worth is in real estate, my favorite asset class to build long term wealth for the average person.
Real estate was my primary reason for being able to generate enough passive investment income to leave work in 2012. It has also been responsible for two of my largest capital gains to date. When it comes to paying for college for my children or providing affordable housing options for them in the future, real estate remains a core part of the plan. Finally, I believe real estate is one of the best ways to actually enjoy your wealth in a responsible and tangible manner.
In short, I love real estate.
However, at 48 years old, I also find that being a rental property owner is increasingly becoming a pain point. My tolerance for dealing with tenant issues, maintenance surprises, regulatory changes, and general property management friction has declined. As a result, I decided to right size my real estate exposure by selling one property in the first quarter of 2025.
Today, I am left with four rental properties plus a collection of private real estate investments, which feels far more manageable given my stage of life and priorities.
Now that you understand my background as a property investor since 2003, here are my real estate forecasts for 2026. And of course, a disclaimer that all risk assets carry risk and there are no guaranteed returns. Always do your own due diligence, just as I am doing now.
Real Estate Prices Should Do Well In 2026
Since 2022, real estate prices across the country have either slowed, flat lined, or declined modestly depending on location and asset type. That adjustment period has been healthy and overdue after the enormous pandemic era surge.
However, I believe there are several compelling reasons why nationwide real estate prices should resume upward momentum in 2026. There are three fundamental reasons and one important sentiment driven factor.
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1) Capital Rotation From Stocks To Real Estate
The valuation gap between stocks and real estate has rarely been wider. Equity markets have delivered enormous gains since the beginning of 2023, while real estate nationwide has largely gone sideways. When such a divergence persists long enough, capital tends to rotate.
S&P 500 investors who have enjoyed roughly 80% gains over a three year stretch from 2023 through 2025 are increasingly aware of downside risk. The last thing most long term stock investors want to experience is a repeat of 2022, when a sharp drawdown erased years of paper gains in a matter of months. Even if stocks continue to grind higher, prudent investors naturally rebalance.
This does not mean money will flee equities en masse. It simply means incremental capital from profits, bonuses, and ongoing cash flow is more likely to flow into hard assets that still trade at reasonable valuations relative to income. Residential real estate fits that description well in many markets.
When enough investors decide to shift even a small portion of their portfolios into real estate, prices move higher. Marginal demand sets prices at the margin, and right now marginal capital looks increasingly inclined to diversify away from stocks.
2) Declining Mortgage Rates Thanks To Narrowing Spreads
Although the 10 year Treasury yield remains stubbornly elevated above 4%, the average 30 year fixed mortgage rate has declined meaningfully. As of early 2026, rates are hovering around 5.99% compared to roughly 7.1% at the same time last year. That improvement matters far more to monthly affordability than many people realize.
The reason mortgage rates have fallen despite relatively high Treasury yields is that spreads have narrowed. One contributing factor is the anticipated purchase of roughly $200 billion of mortgage backed securities by Fannie Mae and Freddie Mac. When spreads compress, borrowers benefit.
Many well qualified borrowers (you FS readers) can already secure rates roughly half a percentage point below the national average. That puts realistic mortgage rates closer to 5.5% for a large segment of buyers. If the Federal Reserve cuts policy rates another two times in 2026, bringing the fed funds rate closer to 3.0% to 3.25%, there should be at least some additional downward pressure on longer term rates as well.
The Trump administration also appears highly focused on housing affordability in 2026. Proposed measures include increased support for mortgage backed securities, public pressure on the Federal Reserve, exploration of longer mortgage terms such as 50 year loans, and attempts to limit institutional ownership of single family homes.
Whether these initiatives succeed or not, the policy bias clearly leans toward supporting housing demand. And as an investor, you never go against the Fed or the government.
3) Increased Affordability Due To A Booming Stock Market
One of the most overlooked drivers of housing affordability is stock market performance. The average S&P 500 index fund investor earned approximately 17% in 2025, 23% in 2024, and 25% in 2023. That kind of wealth creation dramatically changes what households can afford, especially when only a 20% down payment is required.
Despite constant headlines about housing being unaffordable, many dual income households with meaningful equity exposure are in far better financial shape today than they were three years ago. Compare your investment account balances at the start of 2023 with where they stand today. Then compare home prices in your neighborhood over the same period. In many cases, portfolios have grown faster than home values.
The combination of rising stock portfolios and gradually declining mortgage rates creates a powerful tailwind for housing prices. If I were not already at my personal limit for how many properties I want to manage, I would be actively looking to buy another property before the spring buying season heats up. That said, my family found our ideal home to raise a family at the end of 2023. I have no desire to move anytime soon.
An Example Of How Rising Stocks Improve Housing Affordability
To make this concept concrete, consider a simplified example using one of my own accounts. Below is a three year snapshot of my Solo 401(k), which I have funded with various side hustle and consulting income since 2013. The account is almost entirely invested in index funds and stocks.
At the beginning of 2023, the account balance was approximately $213,000. Today, it sits around $505,000, representing a gain of about 105%. What is notable is that I only contributed roughly $30,000 over those three years because I was too busy with fatherhood. 100% of the $30,000 came from my four-month stint as a part-time consultant for a fintech startup from Nov 2023 through March 2024.
Now imagine this was a taxable brokerage account instead of a retirement account, and I was a 33 year old professional earning $110,000 per year in 2023. My wife earns $60,000 per year as a public school teacher, bringing household income to $170,000. Back in 2023, buying a $600,000 home would have felt like a stretch, even though lenders would likely approve the loan.
If I put down $120,000 on a $600,000 home in 2023, that would leave me with roughly $93,000 in liquid investments. That buffer feels adequate but not particularly comfortable. Instead of buying, I choose to rent modestly and invest aggressively in stocks.
Fast forward three years. That same home is now worth $800,000 or less, which actually feels more affordable given inflation, my portfolio size, and income growth. If I put down $160,000 today, I am left with approximately $353,000 in liquid investments. That difference fundamentally changes my sense of financial security.
Time To Look For An Even Nicer Home
With that much cushion, I might rationally consider homes priced between $1 million and $1.3 million. Household income is now around $185,000, up $15,000. Even with a $260,000 down payment on a $1.3 million home, there would still be over $150,000 left to invest in stocks.
Of course, after rereading my own post on income and net worth guidelines for buying a home, I would probably cap my purchase price closer to $1 million. Even so, that represents a substantially nicer home than what I could comfortably consider in 2023, all thanks to equity market gains.
4) More Used To External Shocks Disrupting Housing Demand
One of the biggest factors that derailed the typically strong spring housing season in 2025 was policy driven uncertainty. Beginning in mid February 2025, tariff announcements from the Trump administration rattled financial markets. Stocks sold off sharply through early April, culminating in what was dubbed Liberation Day.
With the stock market down nearly 18% in less than two months, buyers understandably pulled back. When portfolios shrink quickly, confidence evaporates, and housing transactions stall. This was not a reflection of housing fundamentals but rather a response to uncertainty.
In 2026, markets appear more accustomed to the administration’s policy style. While surprises are always possible, the shock factor has diminished. Even geopolitical events such as the surprise capture of Venezuela’s Maduro failed to derail the ongoing stock market rally. This suggests sentiment is more resilient.
Buyers who delayed purchases in 2025 may re-enter the market in 2026 with greater confidence. Their stock portfolios are larger, employment remains relatively stable, and there is more clarity around the administration’s economic priorities, particularly its desire to support housing.
The National Real Estate Picture
According to Zillow, national home values are forecast to rise approximately 1.2% in 2026 after remaining roughly flat in 2025. Zillow cites gradually improving affordability and steady buyer demand as key drivers.
Redfin is similarly conservative, forecasting about 1% price growth in 2026. Redfin points to faster income growth, lower mortgage rates, and a more predictable policy environment.
Based on these forecasts, I believe both firms are underestimating the upside. After three years of below average transaction volume, there is meaningful pent up demand. Nationally, I expect home prices to rise closer to their long term average of 3% to 4%, with wide variation by region.
Why I Am Bullish On San Francisco Real Estate
Given that I own property in San Francisco, this market naturally matters the most to me. I am also fully aware of my bias. That said, I genuinely believe San Francisco home prices will rise at least another 5% in 2026 after a strong 2025.
The technology sector continues to mint wealth at a rapid pace. While the S&P 500 had a strong year in 2025, the tech heavy NASDAQ performed even better. Artificial intelligence has accelerated wealth creation in ways that are clearly visible on the ground.
I see it in my public stock holdings, my private venture investments, and in my experience as a landlord. Google stock rose roughly 50% in 2025, and there are about 36,000 Google employees in the Bay Area alone. I play pickleball, tennis, and poker with some of them. Several parents at my children’s school work at Google. They are clearly wealthier and increasingly interested in upgrading their housing.
My Fundrise venture portfolio rose 43.5% in 2025, with exposure to companies such as OpenAI, Databricks, and Anduril. Thousands of employees at these firms are also seeing significant wealth creation, much of it concentrated in San Francisco.
On the rental side, I experienced tenant turnover twice in 2025. Each time, demand was strong. I estimate rents rose between 7% and 10% year over year. Historically, my five bedroom, four bathroom rental attracted families. The most recent tenant, however, is a couple, one of whom works in artificial intelligence. They wanted two home offices and a home gym. Those preferences reflect the purchasing power being created by the AI boom. The buyer of my sold home works at big tech with a generous bank of mom and dad.
Real Estate As Enjoyment And Semi Passive Income
In conclusion, I am more bullish on real estate than the average forecaster heading into 2026. The decoupling between stocks and real estate over the past three years has gone on long enough.
I expect a gradual reversion as real estate catches up and stocks slow down. There is also a realistic scenario where stocks continue to inch higher while real estate accelerates, creating a favorable environment for both asset classes.
What I value most about real estate is not mark to market gains (or losses) but stability and income. Property does not disappear overnight. It generates semi-passive cash flow that supports our household and allows my wife and me to remain dual unemployed parents.
While real estate may not have been as exciting as stocks or venture capital over the past three years, it continues to deliver the most practical value in our daily lives.
Readers, what are your nationwide housing forecasts and your local real estate outlooks for 2026. Are you bullish or bearish, and why?
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I’ve found active real estate investing not worth the hassle since I have enough money. Problems involving tenants and contractors are not particularly creative or fun to deal with. Then private investments involve collecting K-1s and complicated tax returns.
Real estate is a decent investment for people hoping to leave their jobs or take on bigger risks through leverage. It’s just not worth it for me since I don’t need the money.
Hi Sam!
In 2002, I purchased a 1991 single-family residence for $190k in Yuba City, CA (a commutable community for Sacramento and the Bay Area). My husband and I purchased a larger home on 5 acres in 2012 and turned my house into a rental. I paid the mortgage for 10 years – renters paid the mortgage for 10 years – paid it off in 2022. A LOT of my accumulated profit went into a major rehab in 2023. I doubled the rent after the rehab. While the current renter has been very easy on the interior, I am leaning toward selling after they move out in June 2026. Zillow estimates the residence around $500k. I will have little cost and effort into making it ready for sale. I am currently 67, have a great pension + 401k, yearning to simplify, and am terrified the next renter may not be so easy on the residence. A 1031 exchange isn’t really in the cards, but capital gains (fed and state) are nauseating. You seem to be getting to a time in life when you want quality time with family and are growing weary of landlord responsibilities. I am already there! Any advice on timing or specifics for the sale?
Love your newsletters and honest approach to the complexities of the financial world.
It doesn’t sound like the property is giving you a lot of joy anymore, so I would try to sell it this spring. Little cost and effort to prep it for sale is great.
If a lot of your accumulated profit went into the remodel, then your capital gains tax shouldn’t be that big. Although there is depreciation recapture, you need to account for. Run the numbers and see what your potential net is after everything.
A great pension and a healthy 401(k) means you don’t have to spend too much time dealing with rental properties anymore. I feel amazing having sold one rental property last year and I can’t wait to sell another one next year.
Big FS fan. From you results sounds like Fundrise has worked out well for you. But I experimented over the last five years with very underwhelming results. Maybe wrong fund, bad timing, etc. Just an experiment for me so mostly just psychological sting. Note to readers: just cause FS has 40% of his investments in real estate don’t mistake that to mean “put 40% of your own money in Fundrise.” Not that he’s advocating for that.
Since 2022, when the Fed started aggressively hiking rates. commercial real estate has been in a very difficult spot. But I think that recession is over now. There’s been a huge disconnect between commercial real estate performance and stock market performance went in the past, it’s been highly correlated. So I think eventually we mean revert.
The opportunistic credit fund, and the innovation fund have done very well over the past 2 to 4 years. But the flagship fund has not. I’m hopeful it will rebound as conditions improve for real estate.
Commercial real estate outperformed stocks tremendously in 2018. And had great years in 2019, 2020, and 2021. The Heartland Fund was actually up about 40% one year. But CRE also mean reverted. That’s diversification for you.
I’ve been investing in CRE since 2016.
Hi Sam,
Do you have a previous post where you discuss considerations/financial rules for buying a rental? If not, what are your considerations? Thanks!
You are on the outside looking in so you are rather uninformed about the AI and software industries . Major re org at Google with significant Bay Area layoffs last week. Lots more to come as many Bay Area engineering jobs get moved to India (my business). Claude Code is demolishing the SaaS business. Lots of happy families up and down The Peninsula about to get blind sided .
Thank you for informing me then. Learning is one of my main goals for writing.
I’m sorry if you are having a difficult time. Which tech company do you work at? I think you mentioned AI security? If so, I just invested in a cyber security venture fund last year as it seems like there should be some big expenditures here.
I could totally just be lucky with timing with the profitable sale of a single-family home to a big tech employee last year, and renting out the two other homes at a 10% higher rate. I was surprised at the amount of demand, as these are relatively high price points at $7500 a month and $10,000 a month. So maybe I got the last wave? One tenant works in AI.
I’ve been an Anthropic shareholder for a little over two years now since the $13 billion valuation range. I do think it’s wild that it has gone up over 25 times in value since then post dilution. Based on your information, would you continue to hold? Or would you try to take some profits whenever there is a window of opportunity? I’ve taken the position that this is a 10 year trend and we’re only three years in.
I’ve also been a long time shareholder of Google (since 2010), which I think will do very well in the AI race given its monopoly profits everywhere else. Based on all the people I know who work at Google, they are all feeling wealthier and quite positive. Maybe this is a contrarian sign? Google is actually my number one individual holding now, surpassing Apple given its strong performance in 2025.
But big tech could certainly correct this year after doing so well for the past three years. We are already seeing I’ll performance and other industries.
I’m doing great – I sell Indian software engineering services into AI and cyber. If I had your private AI investments I’d cash in half now. Stay long Google – they just imported a bunch of Microsoft folks into GCP, and with all the data and TPUs I’d say the stock looks cheap. Lazy entitled Googlers are getting handed walking papers. For many 2025 was the peak. In cyber start learning about Security Data Pipelines – whole industry is changing. MCP is a powerful AI standard that will also fundamentally change the product architectures and lead toward cybersecurity nirvana for enterprises. SF RE seems heavily dependent on location from the closings I’ve perused – still not as good as prime South Bay and Peninsula. Appreciate the questions and interaction. .
OK, I’m gonna stay long Google as it is my top public stock pick for the year. Maybe Anthropic goes public this year or next year I’m not sure.
I will certainly be following the spring housing market here in San Francisco. And in due time, we’ll see how it goes. At this point last year, I was prepping a home for sale. So I need to remind myself to be thankful for not having to do that right now.
As an investor, I’m glad I’m not that misinformed. But even if I am on the outside looking in, then at least I’m glad I have relevant exposure.
This is fake news though and fear mongering
My news came straight from people at Google
WARN notices are mandatory and there are ZERO such notices. Probably, your friends are contractors not FTEs
Proof: https://finance.yahoo.com/news/google-sergey-brin-admits-hiring-170658486.html
That 16K bloodbath at AWS last week was a hint of things to come. And 77 more at Google Sunnyvale with a WARN. Unless you’re a rockstar engineer or a high performing IC salesperson you are at major risk.
700+ more Bay Area layoffs today at Amazon – likely mostly AWS
Curious what you think will happen to real estate when folks start losing jobs to AI?
Depends if more jobs are lost than gained. Are you seeing more AI employees losing jobs? If so, where are you based and what do you do?
What’s 1% of the housing market trade at any given time. But when the liquidity events come, oh boy it’s gonna be nuts.
I’ve been a reader since 2013 and apartment investor since 2014. Apartments have made me an incredible amount of money right up until 2022 when interest rates started spiking. Today it is a buyer’s market with high mortgage rates (ARMs only–no 15 or 30 year mortgages in my world), high insurance costs if you can even get a policy, an out of control regulatory environment (aka tenant protections), and flat to weakening rents. I’m seeing deals at 10 GRM which I have not seen since 2017 but returns are compressed compared to the “old days”.
I still value real estate for diversification and tax benefits (I’m a “real estate professional” and my wife has a W-2 income) but I’m not so bullish on its profitability. My NW was 50% RE at one point but due to stock market appreciation and RE depreciation, I’m at 37% RE NW. That’s a more comfortable level; 50% was too high.
I like your analysis as a SFH buyer/owner occupant. I would be wary as an investor/landlord. I’m invested in a few private equity real estate funds. While trouble-free from a management perspective, they face the same headwinds as my private portfolio.
Yeah, I think 50% is the maximum net worth exposure to one asset class. I’ll like to shoot for a closer to 35% in stocks and 35% in real estate myself.
But I do think better times are ahead. 3 to 4 years of no building means a lack of supply over the next 3 to 4 years. As supply continues to tighten, prices and rents will go up. It’s just a matter of time.
Yes, there is still a large glut of multi-family and rentals in a lot of the markets. From what I hear from Private Equity, those gluts were caused by the multi-family building boom in 2022-2024. $100 -120 Billion built by Opportunity Zones alone. New builds are significantly down and the glut will be cleared by end of 2026. You can still get significant deals on rents in overbuilt markets.
One of my friends is a mortgage broker. As soon as rates hit 5.99 he’s working 12 hours a day closing loans. This week they climbed to 6.1 and it’s crickets in his office. Seems anything under 6 is the magic number.
Great anecdote! Lots of psychology behind mortgage rates.
But the reality is, most of us can get ~0.5% lower than the average mortgage rates out there. But I guess people see headlines.
I suspect you’re right about 2026 home prices. Either way, your income and net worth guidelines are really helpful!
Let’s hope so! And I’m glad you found my guidelines useful. Cheers
Question – are the income and net worth guidelines pertinent if you pay cash for a home or is it for those who have a mortgage?
Yes, net worth definitely still pertinent. But you can earn less income if you pay cash. The ongoing maintenance cost and taxes of a home is important to always consider.
This is my situation as well. How much less income? Maybe another table or column showing the income requirements if paying cash would be helpful.
To be conservative, I would stick to the income guidelines I’ve presented. You can follow the low end of income and low end of net worth. But you could probably cut the income in half if you pay cash, provided you have a medium to upper amount level net worth based on my guide.
After six long years of watching the market from the sidelines, this outlook finally makes me feel like buying a home is realistic again. I don’t expect fire-sale prices, but the combination of mortgage rates easing from the 7%+ highs, gradually improving inventory, and slower price appreciation feels like the most balanced setup buyers have seen in a long time. I also appreciate the point about how stock market gains over the past few years have strengthened many households’ balance sheets — that’s certainly been true for me, and it makes committing to a down payment feel far less stressful than it would have a few years ago. This doesn’t feel like a “perfect” market, but it does feel like a fair one, and after waiting this long, that’s good enough to finally move forward.
2020-2022 was a good time compared to now? I’m very happy I traded up and got a better price and better financing cost.
I feel like my appreciation for real estate as a source of shelter and as an investment has grown exponentially every few years. I can’t imagine my life without it and am glad that I started diversifying into it when I did.
I was also quite surprised to learn about Trump’s proposals in your last newsletter. I don’t follow the news too often so they came as a big wow to me. Who knows what will actually happen, but I will be eager to see how things develop.
I’m glad that I’m comfortably in your “income and net worth to buy a home” guidelines. Because I’m a big laggard on your “auto to home value” ratio table! I like a nice ride :)
Hah! Nice. Well, all you have to do is hold your sweet ride for longer, and your ratio will organically improve over time. Easy peasy!