2026 Market Outlook: From Macro Volatility to Real Estate Reality
From the capture of a Head of State to the potential indictment of a Federal Reserve Chairman, we have started 2026 with a "BOOM." While the headlines are loud, the numbers in the real estate sector tell an even deeper story.
Commercial Real Estate: The Bay Area Reset Commercial Real Estate in the SF Bay Area continues to face headwinds. Cap rates are trending upward as valuations adjust to a new reality. Notably, a major tech campus recently traded for 33.7% less than its purchase price a decade ago. We are seeing a shift in the retail landscape as well: while bank branches close, national giants like Costco and Walmart are impacting local pharmacies and "Mom & Pop" shops. The transition from "Rent" to "For Lease" signs in storefronts remains slow but steady. Interestingly, cap rates have increased from early 2025 into 2026, even as Fed Funds rates have begun to decline.
The Residential Affordability Crisis Nationwide, 75% of homes currently on the market are unaffordable to the typical American household. Prices remain 50% higher than pre-pandemic (2020) levels. In coastal hubs like New York, Los Angeles, Miami, San Francisco, San Diego, and San Jose, the situation is even more dire. According to Zillow, even a 0% mortgage rate would not be enough to make a median home affordable in these markets.
The California Exodus & Policy Shifts California’s recent rent control expansions are intended to protect renters, but they are increasingly viewed as a deterrent for landlords. Consequently, cap rates on multi-family assets are rising as investors look out-of-state for friendlier environments.
As Sean Roberts, CEO of Villa, recently told Fortune:
“We see the housing market remaining relatively stuck... until we see income growth rapidly accelerate, mortgage rates decline materially, or home prices come down—all of which remain unlikely.”
Furthermore, President Trump has proposed legislation to ban corporate ownership of single-family homes, adding another layer of uncertainty to the market.
The Strategy: What to do? At some point, prices must yield to the sheer weight of negative sentiment. We are already seeing a correction in the residential sector, with weekly price cuts becoming the norm—not just in California, but in "evacuation states" like Florida, North Carolina, Nevada, and Arizona.
For many families, renting is now more financially viable than the combined costs of a mortgage, property taxes, and maintenance. In California, a new proposal for a 5% tax on billionaires threatens to further drive out the primary sources of jobs and investment.
The Bottom Line: Whether you are a home buyer or a commercial investor, the strategy is clear:
Sellers: Accept realistic offers and move on.
Buyers: Make aggressive offers below list price to achieve acceptable cap rates or affordable monthly payments.
Expect a slow market for the remainder of 2026. Be diligent, keep analyzing deals, and stay ready. Opportunity will knock.
Gary McKae
Commercial Real Estate Advisor | Investor Advocate | Author
📍 McKae Properties, Inc.
📧 gary@pacwestcre.com
🌐 www.mckaeproperties.com
📞 (650) 743-7249
🏢 2044 Union Street, San Francisco, CA 94123
DRE# 01452438
📌 Want to know how these trends affect your portfolio?
Schedule a consultation or visit www.mckaeproperties.com for the latest market insights.
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