SLO County’s housing market could stay pretty stagnant next year. Here’s why
Unfavorable economic conditions, tariffs and prolonged inflation could make for a housing market that changes little for most California homebuyers in 2026 — and after a flat, uninspiring year in the market in 2025, that’s not an easy forecast to stomach.
According to the California Association of Realtors’ 2026 housing market forecast, California — including San Luis Obispo County’s seemingly impenetrable bubble of market consistency — could be in for another stagnant, top-heavy year in the housing market.
San Luis Obispo-based Realtor Graham Updegrove said the relatively weak economic forecast means that the market will continue to chug along, with most transactions coming from the highest earners, while lower-income households will remain on the sidelines.
“I think in some ways, it widens the gap on the haves and the have-nots,” Updegrove said. “There was a record number of cash purchases last year, and for those buyers that have the liquidity, they’re paying cash because their alternative is paying 6.5, 7% in interest rates, so they’re tapping into their liquidity versus taking out a mortgage.”
“A lot of buyers simply don’t have that option,” he continued.
Weak economic forecast casts doubt on market improvement
The forecast factors in several economic predictions that are likely to impact the housing market — and in many of those categories, the U.S. economy is expected to slow, limiting the amount of possible growth.
The U.S. gross domestic product is expected to slow its growth from a projected 1.3% by the end of 2025 to 1% year-over-year, and nonfarm job growth is expected to fare worse, from a projected 0.9% in 2025 to a forecasted 0.3% in 2026.
The Realtors association also expects unemployment to rise from 4.3% to 4.6%, and forecasts the consumer price index to rise from 2.8% to 3%.
2025’s increase in cash purchases comes at a six-year low point for first-time homebuyers in California.
According to data included in the forecast, just 32.1% of home sales were to first-time homebuyers. First-time homebuyers haven’t accounted for more than 40% of home sales in California since 2010.
California’s median home price is forecast to rise 3.6% to $905,000 in 2026, following a projected 1% increase to $873,900 in 2025, according to the forecast.
The oft-discussed “lock-in effect” — in which mortgage holders who have low interest rates will stay away from buying a new home to avoid the associated mortgage rate increase — will continue to play a big role in the market in the coming year, as interest rates aren’t expected to decline significantly anytime soon, Updegrove said.
Rates are expected to decline gradually at best, from around 6.6% to 6% next year, which could open up some affordability, but any notable decline in rates are also likely to herald an increase in home prices, he said.
“You have to figure out how to reduce expenses, and unfortunately, in California housing expense is such a large component of total expenses, so I think there will be some belt-tightening,” Updegrove said. “There’s already been an increase in multi-generational living just to save costs.”
Is SLO County’s market immune to broader economic pressures?
Historically, San Luis Obispo County’s housing market has been resilient in the face of outside market pressures thanks to its highly desirable location and value — but if economic conditions worsen enough to the point of a recession, it can still buckle to outside pressure, San Luis Obispo Realtor Hal Sweasey said.
In 2026, the direction that the market takes will come down to two factors: the Fed’s direction on interest rates, and the economy’s resilience, he said.
While the forecast didn’t claim a recession was coming, the underwhelming economic forecast is still likely to impact the market, Sweasey said.
If the Fed lowers interest rates, prices are likely to increase, Sweasey said. If they keep the rates where they are, some buyers will still stay out of the market, he said.
Compared to other periods of elevated interest rates, a 6% mortgage isn’t too bad — but after several years of elevated prices that have left more and more homes on the market than usual, that rate’s just less appealing to most buyers, Sweasey said.
“If the rates continue to drop — I’m pretty conservative, but I think they will — then most likely that’s going to lead to more demand, which will scoop up the additional supply we’ve got,” Sweasey said. “Let’s be really clear, 6% is a great mortgage rate — 3% was unbelievably good, but it came with consequences.”
These days, the high cost of most homes on the market is keeping a large portion of the market as renters, making for a strong — if unhealthy — rental market in San Luis Obispo County, Sweasey said.
“(The recession) did affect us in 2007 and 08, when we had a recession at that time, but not to the same level as in other places, so we are somewhat protected,” Sweasey said. “If you think about the last recession in terms of real estate at that time, what happened to the rental market? It got stronger because people had gotten the homes that probably shouldn’t have.”
In the report, senior vice president Jordan Levine said there are reasons to have hope for a more affordable market, but too many factors are at play to say that meaningful improvement in the market is coming.
“As economic uncertainty begins to clear up in the next 12 months and mortgage rates start declining more consistently in the upcoming quarters, housing sentiment will see some improvement in 2026,” Levine said in the report. “However, mounting headwinds such as the ongoing trade tensions between the U.S. and its trading partners, the home insurance crisis, and a potential stock market bubble will remain challenges for the housing market in upcoming year.”
